Country garden completed the first issuance of domestic corporate bonds this year as scheduled.
On May 20, Country Garden real estate announced that it had completed the bookkeeping and filing of the first issue of corporate bonds “22 bidi 01” in 2022. With the support of credit protection contracts, this issue of bonds attracted many institutions, including large state-owned banks, joint-stock banks and securities companies, to participate in the bidding process, with a coupon rate of 4.5%.
This is one of the most concerned topics in the industry this week, because on May 16, market news said that country garden, Longhu and Midea real estate were selected as model real estate enterprises by regulators, and will issue RMB bonds successively this week, and the creator will also issue credit protection tools including credit default swaps (private CDs) or credit risk mitigation certificates (crmw), To help private real estate developers gradually restore the financing function of the open market.
The release of “model real estate enterprises” is the specific implementation of the previous policy commitments of the regulators. Since this year, the signal of regulators supporting the reasonable financing needs of real estate enterprises has gradually become obvious. In addition, according to the news of the CSRC on May 11, in order to implement the decision and deployment of the CPC Central Committee and the State Council on supporting the development of private enterprises and the working requirements of the government work report on improving the bond financing support mechanism of private enterprises, the exchange bond market has launched a special support plan for private enterprise bond financing to stabilize and promote private enterprise bond financing.
It is reported that the special support plan for private enterprise bond financing is implemented by China Securities Finance Co., Ltd. (hereinafter referred to as “CSI finance”) with its own funds. Through cooperation with bond underwriting institutions to create credit protection tools, credit enhancement supports private enterprise bond financing with market, prospect, technical competitiveness and in line with the national industrial policy and strategic direction.
In order to attract investors and reduce their concerns about subsequent subscription of relevant bonds, the real estate enterprises selected as the model bonds will adopt the mode of “bond issuance + credit protection tool”, which has not been used by real estate enterprises in the past.
According to the previous announcement of country garden, Country Garden real estate was registered with the permission of China Securities Regulatory Commission on February 10, 2021, and issued corporate bonds with a total face value of no more than RMB 13.9 billion to professional institutional investors by stages. On this basis, the total scale of “22 bidi 01” bonds is 500 million yuan, and the bond term is 3 years.
The value date of the bond is May 24, 2022. After deducting the issuance expenses, the funds raised by the bond will be used to replace the self owned funds advanced by the issuer for the resale of “19 bidi 01” bonds.
In addition, “22 bidi 01” is the first batch of domestic credit bonds with credit protection tools and successfully issued by private real estate enterprises. CDs credit protection contract was created by China Securities Finance and China Securities Co.Ltd(601066) securities.
The creation process of credit protection contract has been widely concerned by investors in the bond market. On the one hand, the single project is the first credit protection tool based on private real estate enterprises in the market, which has good demonstration and replicability. On the other hand, in the early stage of bond inquiry, in order to ensure the success of the issuance, the lead underwriter took the initiative to act, raising the upper limit of the amount created by the credit protection contract, which helps to improve the subscription intention of investors.
Credit protection contracts belong to one category of credit protection tools, and the other category is credit protection vouchers. Within a certain period of time agreed by the credit protection instrument, the credit protection buyer shall pay the credit protection fee to the credit protection seller in accordance with the agreed standards and methods. When the agreed credit events occur, such as the debtor’s breach of contract, bankruptcy, etc., the credit protection seller shall bear part or all of the debt payment liability to the buyer according to the agreement.
CDs and CRMA (credit risk mitigation contract) are credit protection contracts. Both parties to the transaction sign the master agreement before reaching the contract, and submit the contract declaration after consensus. They cannot circulate and transfer in the secondary market; Crmw and CLN (credit linked notes) belong to credit protection vouchers, which are created by the creation institution and can be traded in the inter-bank market.
Including country garden, Longhu and Midea real estate set up credit protection contracts in this round of corporate bonds.
Some analysts believe that credit protection contract is an innovative measure to expand the financing channels of private enterprises and alleviate the financing difficulties of private enterprises. Sellers such as securities companies directly enhance the credit of reference debt with their own credit, which helps to improve the financing ability of corporate bonds.
In addition to the use of credit protection tools, the reason why country garden and other real estate enterprises can successfully issue bonds is that they have the characteristics of strong development and operation ability and relatively stable finance, which is easier to be recognized by investors.
By the end of 2021, the cash balance of country garden was about 181.3 billion yuan; The total loan balance decreased to 317.9 billion yuan, of which the proportion of short-term debt decreased to 24.9%. The net lending ratio was 45.4%, an improvement of 10.2 percentage points over the end of last year; The weighted average financing cost decreased by 36 basis points to 5.2% compared with the end of last year, and the cash short debt ratio was about 2.3 times.
From the perspective of the three red lines, country garden is still in a relatively healthy yellow range, with good performance in net loan ratio and cash short debt ratio. The asset liability ratio excluding advance receipts has also decreased from 80% at the end of 20 to 74% at the end of 2021. It is planned to realize the adjustment from yellow to green before the middle of 2023.
Since this year, country garden has boosted investors’ confidence in high-quality private real estate enterprises through practical measures such as repurchase of bonds and increase of holdings.
From December 30 to March 30, 2021, country garden has bought back the principal of senior notes totaling US $55.7 million. The debt structure has been optimized year by year, and the short-term debt has been further reduced. As of March 30, country garden had no domestic bonds due during the year, and only a $700 million senior note due overseas in July.
Country garden has smooth and diversified financing channels. At the beginning of November last year, after the Symposium of real estate enterprise representatives held by Bank Of China Limited(601988) inter market dealers association, country garden became one of the few private real estate enterprises that got the “ticket” of domestic bond issuance, and finally obtained the registration amount of 5 billion yuan of medium-term notes.
In addition, on December 13 last year, country garden successfully issued 284 million yuan, one-year supply chain ABS on the Shanghai Stock Exchange; A few days later, it successfully issued a public offering corporate bond of 1 billion yuan with a term of 2 + 2 years on the Shanghai Stock Exchange; On January 18 this year, a supply chain ABS with a term of 521 million yuan and one year was successfully issued in Shenzhen Stock Exchange
Country garden’s stable financial situation and operating performance have also been recognized by major cooperative financial institutions. In March this year, country garden successively signed 15 billion yuan and 40 billion yuan strategic cooperation agreements with China Merchants Bank Co.Ltd(600036) , Agricultural Bank Of China Limited(601288) Guangdong Branch of China. By the end of 2021, the unused credit line of country garden was about 261.5 billion yuan.
When the real estate industry is facing adjustment, country garden still maintains a stable sales situation, and the collection rate remains high. It can remain stable at the most important sales end, which is also the main factor for country garden to be recognized by the capital market and financial institutions.
In 2021, country garden achieved an annual equity sales amount of 558 billion yuan, which remained stable year-on-year, and the sales scale continued to rank first in the industry. In the first quarter of this year, the equity contract sales amount of country garden reached 99.23 billion, and the cumulative equity sales collection rate was as high as 95%. From January to April this year, country garden has achieved an equity sales amount of 121.87 billion yuan, which continues to be in the forefront of the real estate industry.
Based on the current good operation and financial performance of country garden, foreign investment banks and major securities companies in China continue to be optimistic about the growth of country garden. JPMorgan Chase raised the investment rating of country garden from neutral to overweight in April. Previously, JPMorgan Chase said it recognized the company’s financial stability and low liquidity risk. It is a developer who can continue to develop in this round of regulation cycle.
Shenwan Hongyuan Group Co.Ltd(000166) in the latest report in May, it is expected that the policy restoration at both ends of the supply and demand of the real estate industry is expected to accelerate, and will promote the optimization of the industry pattern and the further improvement of the concentration, and the high-quality real estate enterprises are expected to usher in the improvement of both quantity and quality.
With the reopening of domestic corporate bond channels of private real estate enterprises, the financing advantages of high-quality real estate enterprises represented by country garden will be further highlighted.
