China developer Country Garden raising US$500mn from bond sale

Country Garden Holdings Co. is raising HK$3.9 billion (US$500 million) from the sale of convertible bonds, a show of strength by the embattled property giant after a report last week that it was struggling to issue debt. 

The fundraising announcement from China’s largest developer by sales helped boost its dollar bonds on Friday, extending a massive rally that saw its 2024 note rise to 94 cents on the dollar from Monday’s record closing low of 70 cents, according to Bloomberg-compiled prices. Country Garden, long considered one of China’s healthiest property companies, has become a proxy for financial contagion in an industry that accounts for about a quarter of the country’s gross domestic product. 

Bonds and shares of the developer and its peers have swung wildly in recent weeks as investors reacted to sometimes conflicting reports about the industry’s access to funding and the government’s willingness to relax a long-running crackdown. While few anticipate a major policy reversal, people familiar with the matter have said authorities are considering steps to prevent a destabilizing liquidity crisis. 

The Foshan-based company is selling the bond due 2026 with a 4.95 percent coupon, according to a Hong Kong exchange filing Friday. The proceeds will be used to refinance offshore debt that will become due within a year.  

“Country Garden’s successful issuance of HK$3.9 billion of convertible bonds due in 2026 may signal its access to funding alternatives, even if the 4.95 percent coupon is not low. The potential improvement in liquidity could enable the property developer to buy back more bonds to stem declining bond prices.”, says Bloomberg Intelligence Credit analyst Daniel Fan. 

Country’s Garden’s 3.3 percent dollar note due 2031 climbed 2.2 cents to 80.3 cents, set for the highest in more than two weeks, Bloomberg-compiled prices showed. The shares fell as much as 5.2 percent following a three-day, 19 percent jump from their lowest level since 2017. 

Country Garden set the initial conversion price at HK$8.10 per share, representing a premium of 16 percent to its Thursday close. Its shares dropped last week following an IFR report that the firm failed to win sufficient investor support for a possible convertible bond deal. 

The developer also said its 7.125 percent note due Jan. 27 will be repaid at maturity with internal resources. Including that, it has US$1.1 billion of dollar bonds due this year, compared with about US$29 billion of available cash as of last June, according to data compiled by Bloomberg. 

(Bloomberg)