Sunac China Holdings Ltd has issued $1 billion worth of bonds offshore to refinance some of its existing debt, in the acquisitive Chinese property developer’s latest fundraising after a recent spate of deals. The highly-leveraged company is tapping multiple financing channels offshore after its credit risks came under scrutiny in China on a string of high-profile purchases, including the $6.52 billion tourism projects deal with Dalian Wanda Group and a $2.2 billion stake in Leshi Internet. Last week, Sunac agreed a private share sale worth $516.4 million.
Sunac said in a filing on Thursday it issued $400 million senior notes due in 2020 and $600 million due in 2022 at coupon rates of 6.875 percent and 7.95 percent, respectively. The new bonds started trading on Thursday slightly weaker than their issue price. “Clearly a billion dollars across two tranches is a big size – normally high yield names come in smaller tranches. And this is an acquisitive company,” said a bond trader who asked not to be named, referring to the weak debut of Sunac’s new bonds.
The bond sale included nine bookrunners, a lineup larger than usual, underscoring the challenges to issuers amid ample supply in the China high yield property sector.
LVGEM (China) Real Estate is the latest joining the long queue of issuers on Thursday, hiring eight bookrunners.
Analysts have said Sunac’s gearing ratio will surge to become among the most indebted developers in the country after the Wanda deal, and S&P has put Sunac’s rating on CreditWatch Negative, which means there is 50 percent of chance of negative rating action. “The proceeds from the notes issue are intended to be used for re-financing the group’s existing indebtedness,” Sunac said.
Sunac’s next bond maturity date will not be until 2019, but 32.64 billion yuan from other borrowings will be due by the end of this year. Bond analysts expect the company to call the 2019 bonds on which it is paying a coupon of 8.75 percent. The bonds are callable in December.
Sunac said its total borrowings, which include notes, asset-backed securities, bank loans, corporate bonds and private domestic corporate bonds, amounted to 112.8 billion yuan ($16.77 billion) as of the end of 2016.
Sunac chairman Sun Hongbin said last month the deal with Wanda, which was adjusted to exclude the purchase of 76 hotels, would help the company’s liquidity and lower its debt level. He added the firm had “ample” cashflow, with 90 billion yuan of cash on hand. HSBC, Morgan Stanley, China CITIC Bank International, Citigroup, CMB International, Haitong International, Industrial Bank Co, ICBC International and SPDB International are the bookrunners of Sunac’s bond sale.