Loan Crunch Sends Hong Kong Developers to Bonds: China Credit
Feb. 14 (Bloomberg) — Hong Kong’s property developers facing competition from Chinese companies for financing are selling a record amount of dollar-denominated bonds.
The Kwok family’s Sun Hung Kai Properties Ltd. and billionaire Peter Woo’s Wharf Holdings Ltd. led seven Hong Kong real estate companies selling $6.18 billion of debt in 2012, the busiest quarter on record, according to data compiled by Bloomberg. Loans to the city’s developers slumped in the second half of 2011 to the lowest level in two years.
Hong Kong’s benchmark one-year interbank lending rate has jumped 18 basis points in the past six months amid record demand for debt funding from Chinese companies. At the same time the average yield investors demand to hold Hong Kong corporate dollar debt rather than Treasuries has fallen 19 basis points to 318 this year as the global economy shows signs of recovery. It is still more than the average spread of 244 basis points for real estate companies worldwide.
“Many Chinese companies have been tapping the Hong Kong bank market for liquidity and the city’s property developers have adjusted their financing strategy,” Gina Tang, head of debt capital markets for Hong Kong and China at HSBC Holdings Plc, said in a telephone interview on Feb. 10. “Investors have responded enthusiastically and participated in every deal in the last two weeks.”
Lending Restrictions
China’s corporates are approaching Hong Kong banks for funds after the government introduced credit restrictions on loans and pledged to clamp down on informal lending. Chinese companies borrowed $12.3 billion of U.S. dollar and Hong Kong currency loans in 2011, more than any other year on record, according to data compiled by Bloomberg.
European banks have retrenched in their home countries to mitigate the impact of the debt crisis and financial institutions worldwide are implementing international Basel III capital rules, which will increase the amount of cash that banks have to hold on their balance sheets to hedge against defaulting loans.
The average all-in pricing more than benchmark rates for loans to top-tier corporates in Hong Kong rose last year to 138 basis points, or 1.38 percentage points, the highest level since at least 2006, according to a presentation by Standard Chartered Plc at FinanceAsia’s Corporate Funding Asia conference in Hong Kong last week. Company lending rates may rise between 200 basis points to 300 basis points by the end of 2014, according to a report from Barclays Capital yesterday.
Fixed-Rate Debt
Loans to Hong Kong developers plunged 90 percent to $541 million in the second half of 2011, down from $5.6 billion in the first six months of last year, according to data compiled by Bloomberg.
Companies are able to fix interest rate payments for years in advance by selling bonds. Sun Hung Kai sold $500 million of 4.5 percent February 2022 bonds and added $275 million to its 3.5 percent November 2016 notes this year while Wharf raised $900 million from its sale of 4.625 percent five-year bonds, according to data compiled by Bloomberg.
Wheelock Co. started marketing its own five-year dollar bond today, according to three people familiar with the matter who asked not to be identified because the details are private.
Henderson Land Development Co., which is owned by Hong Kong’s second-wealthiest person Lee Shau Kee, sold $400 million of 4.75 percent bonds due February 2017. Nan Fung Group, NWS Holdings Ltd., a unit of New World Development Co., Kerry Properties Ltd. and Li Ka-Shing’s Hutchison Whampoa Ltd., a conglomerate, have also sold debt, the data show.
Shipping Tycoon
Wharf is controlled by billionaire Peter Woo and other heirs of deceased shipping tycoon Sir Yue-kong Pao. Woo, ranked eleventh in Forbes Magazine’s list of Hong Kong’s 40 richest people in January, has a net worth of $3.4 billion.
Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/02/13/bloomberg_articlesLZBI1O1A1I4H01-LZDCM.DTL
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