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China Evergrande Sells $1 Billion in Bonds at 11%

Last Updated: Tuesday, November 27, 2018 - 17:29

China Evergrande Sells $1 Billion in Bonds at 11%

Debt-laden developer China Evergrande announced on Monday that it had sold $1 billion in senior notes due in 2020, with the new paper carrying 11% interest rates.

The company said that the fresh tranche of bonds, which were issued less than three weeks after the Shenzhen-based home builder had sold $1.8 billion in bonds in an earlier offshore debt issue, were part of a bid to “refinance its existing offshore indebtness,” according to the company’s filing to the Hong Kong Stock Exchange.

Evergrande’s bonds were assigned a B credit rating by ratings agency S&P – deep into junk-rated territory – and a B2 rating by Moody’s service, as analysts raise questions about risks to the developer’s business, and to China’s real estate sector in general, as home sales slow and the mainland government continues to clamp down on credit.

Chinese developers have been caught in a tightening funding squeeze as Beijing pushes forward a deleveraging campaign to reduce the country’s total debt and rein in an overheated property market. To make things worse, the sector is facing a record $62 billion of bonds due in both onshore and offshore markets in 2019, prompting the country’s builders to sell short-term dollar bonds with higher premiums.

Evergrande’s additional notes will be consolidated and form a single class with the $565 million in senior notes that it issued at 11% on November 6, which was part of the company’s $1.8 billion bond sale at the end of October, according to the company statement.
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Evergrande surprised the bond market on October 31 by selling three tranches of senior notes worth $1.8 billion with interest rates up to 13.75%. The company’s billionaire chairman and founder Xu Jiayin subscribed to more than half of the overall issue, a move seen as an attempt to lift investor confidence.

Xu and a wholly-owned company bought $500 million of the $645 million in four-year notes, which yield 13%, and the same amount of the $590 million in five-year paper, which carried a coupon of 13.75%. The company also sold $565 million in two year notes with a coupon of 11%, which will be consolidated into the new $1 billion tranche.

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