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Powerlong taps RMB bond market to pay off debts
Chinese property developer Powerlong Real Estate Holdings returned to the offshore renminbi bond market with a lucrative deal for investors, raising 1.5 billion renminbi (US$244 million) to refinance maturing debts.
Gita Dhungana 11 Sep 2014

Chinese property developer Powerlong Real Estate Holdings returned to the offshore renminbi bond market with a lucrative deal for investors, raising 1.5 billion renminbi (US$244 million) to refinance maturing debts.

 

The three-year Reg S bonds were priced at 99.37% for a re-offer yield of 11% and carry a coupon of 10.75%.

 

The transaction follows Powerlong's failed attempt to issue dim sum bonds in January 2014, when it was forced to pulled the deal after investors sought more lucrative offer than just the 9.875% yield it was proposing then.

 

The latest notes are expected to be rated B3 by Moody's and B- by Standard and Poor's, placing the bonds into highly speculative category. The issue ratings are a notch down one level from the issuer ratings of B2 (Moody's) and B (S&P), indicating the bonds' structural and legal subordination.

 

"The issuance will not increase Powerlong's debt leverage in any significant manner given its refinancing purpose and will in fact improve its debt maturity profile," says Gerwin Ho, a Moody's vice-president and senior analyst. However, Ho adds, Powerlong's credit profile is constrained by the execution and funding risks associated with rapid expansion, as well as by its high debt leverage and limited financial flexibility.

 

The company reported 18.1 billion renminbi of gross debt at the end of first half 2014, which was about 1.5x of its contracted sales target this year. During the same period, it recorded 25.4% growth in contracted sales and 27.4% growth in revenue, on the back of good sales track record in the Yangtze River Delta where it achieved higher average selling prices than the group's average.

 

"We expect debt to remain high, given the need to ramp-up construction after a series of land acquisitions in 2013. Powerlong's liquidity position remains subject to the challenge of high levels of refinancing and construction funding," adds Ho.

 

The latest bond issuance garnered a robust demand with the size of the order book nearing 6.4 billion renminbi from close to 90 accounts, according to a source.

 

Asian investors accounted for 92% of the deal with the rest taken by Europe. By investor type, asset managers dominated in the final allocation at 60%; private banks were allotted 25%, banks 7% and corporates 8%.

 

Bank of America Merrill Lynch, Credit Suisse, Guotai Junan, Haitong International, HSBC, UBS and VTB Capital were the joint bookrunners on the deal.

 

Powerlong is focused on building large-scale integrated residential and commercial properties in second- and third-tier cities in China. As of June 30 2014, it had a development land bank of around 10.6 million sqm in gross floor area (GFA) in nine provinces, and had 15 commercial properties in operation.

 

 

 

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