Heavily indebted developer China Evergrande to sell onshore bonds worth US$1.3 billion

Pearl Liu
·3-min read

China Evergrande, the country’s most indebted property developer, plans to sell onshore bonds worth 8.2 billion yuan (US$1.3 billion) to pay down debts that are due soon.

Hengda Real Estate, the company’s Shenzhen unit, has proposed the bond sale, with an indicative interest rate range of between 5.5 per cent and 7.5 per cent, according to documents filed with the Shenzhen Stock Exchange on Thursday. The bonds are to mature in five years.

The proceeds from the sale will be used to meet an early repayment request due on May 6 made by the investors of bonds worth 15 billion yuan maturing in 2023.

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Chinese property developers have emerged as the country’s most indebted companies after Beijing reined in the heavily geared real estate sector as it sought to maintain financial stability while the country’s economy recovered from the dislocation caused by the coronavirus pandemic. The central government outlined “three red lines” for the sector in August, putting limits on borrowing.

Evergrande, which is chaired by billionaire Hui Ka-yan, owed 670 billion yuan as of the end of last year. It has failed to meet Beijing’s deleveraging targets, which cap debt-to-asset ratios for developers at 70 per cent, net debt-to-equity at 100 per cent and short-term borrowings at no more than cash reserves.

The developer, as well as Guangzhou R&F Properties and Sunshine 100 China Holdings, were the only rated developers that were in breach of all three thresholds, according to international rating agency S&P Global Ratings. The rating agency said this month that half of all the developers it rated in China would fulfil all three criteria by this year.

In comparison, Evergrande set its own target of meeting the thresholds next year. This means Evergrande will lag behind its peers.

“We will further halve our debts over the next two years and hit 350 billion yuan or less by June 2023,” Xia Haijun, the developer’s chief executive, said during a results briefing last month. “And we aim to meet two of the metrics by the end of this year and achieve all three by 2022.”

“Evergrande’s reliance on short-term debt remains material, accounting for about 47 per cent of total debt as of the end of 2020, and its cash to short-term debt weakened,” Cedric Lai, vice-president of corporate finance group at Moody’s, said this month.

Evergrande’s gearing will continue to improve because of expected debt reduction and revenue growth backed by its solid sales performance, however its short-term debt raised concerns, said Moody’s Investors Service.

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