China Evergrande Group tops the bond market borrowers in Asia, excluding Japan, this 2019 following a $1 billion tap of its latest issue which increased its total sales to $6.6 billion so far. The third largest developer in China said on Monday that it has sold $200 million in three-year notes and an additional $400 million each in four-and five-year bonds.
The sold notes carry coupons of 9.5 to 10.5 percent. The coupons have the same terms and conditions as the bonds sold by Evergrade worth $2 billion last week. The Refinitive data showed that the company has now tapped bond markets for a total of $6.6 billion in 2019 including those issued through the Hengda Real Estate Group, Evergrande Group's subsidiary.
The latest sales of the company surpassed the sales of Tencent, a Chinese gaming giant, which disposed of $6 billion of bonds this early April.
Evergrande follows Japan as the largest borrower this year. Dealogic data showed that Japan's biggest bank, the Mitsubishi UFC Financial Group, raised $7.3 billion in dollar bonds so far. The data gathered by Refinitiv showed that the sales of Asian junk bonds start slow this year on expectations for lower interest rates and as a market rally stunned the risk appetite. The bonds made a record of $27.5 billion sold in the first quarter. The data also showed that Evergrande will use the proceeds to refinance existing indebtedness and for capital expenditure.
According to Fitch, the developer projects to spend 20 billion yuan on non-property businesses that include research, development, and production of electric vehicles. It is comparable to the 16 billion yuan in non-property capex in 2018.
S&P analyst Matthew Chow said that the key concern is the company has been issuing more bonds since there's been an easing in liquidity, both onshore and offshore, and part of the proceeds are not used for refinancing. He added that they need to see whether its overall spending appetite including doing more financing via other means such as trust loans also increases. He also said that there could be a risk that the situation could be different from what we expected earlier, but we believe that it is still in the hands of the company.
The Evergrande Group is one of the companies with the highest debt ratios in the industry. the company, however, assured that they will cut its net gearing ratio from 240 percent in June 2017 to about 70 percent by June 2020.
