On January 21, country garden announced that the company had successfully issued HK $3.9 billion convertible bonds due in 2026, with a coupon rate of 4.95%. In the recent cold market and tight liquidity environment, this leading private real estate enterprise in China can still issue bonds abroad at low cost, showing strong strength.
HK $3.9 billion convertible bonds were successfully issued
Country garden’s announcement shows that the estimated net proceeds from bond issuance is about HK $3.861 billion. The company plans to use the net proceeds to refinance the existing medium and long-term overseas debts due within one year.
Convertible bonds can be converted into corporate bonds, which is a mixed form of bonds. The issuing company stipulates in advance that creditors can choose a favorable opportunity to convert their bonds into equivalent shares of the issuing company according to the conditions specified at the time of issuance.
The announcement shows that the convertible bond exchange price of country garden this time is HK $8.1, about 16.38% higher than the closing price of the previous day. If all the bonds are converted, the bonds will be convertible into 481 million shares, equivalent to about 2.08% of the issued share capital of the company on the announcement date and about 2.04% of the issued share capital of the company expanded by the issuance of conversion shares.
Analysts believe that the issuance of convertible bonds will help the company continuously optimize its debt structure. At the same time, country garden can do relevant issuance at such a low cost, which gives the market greater confidence.
investment grade strength supported by sound finance
In 2021, the real estate market was “high in the front and low in the back”. The overall market was cold in the second half of the year, and the sales performance of real estate enterprises was lower than that in the first half of the year and the same period last year. With forward-looking strategic layout and strict financial discipline, country garden’s sales performance remained stable and continued to lead the industry, showing strong business toughness. In 2021, the company achieved a contractual sales amount of about 558 billion yuan of equity attributable to the company’s shareholders, with an equity contractual sales area of about 66.41 million square meters. In the latest annual sales ranking of China Index Research Institute, Kerui and other third-party institutions, country garden ranks first in the industry.
According to Kerui’s statistics, country garden’s full-scale sales amount in 2021 was 758.82 billion yuan and its trading amount was 720.86 billion yuan, both of which were the only real estate enterprises of 700 billion grade, and the amount of equity was also the only real estate enterprise breaking 500 billion yuan.
At the same time, country garden continued to optimize its debt structure and further enhanced its financial robustness. According to the financial report, the net debt ratio of country garden in the first half of 2021 was only 49.7%, which has remained below 70% for many consecutive years; The financing cost at the end of the period was about 5.39%, down 17 basis points from the end of last year. By the end of June last year, the company’s available cash balance had reached 186.24 billion yuan.
With its strong operation and financial position, country garden is recognized by the world’s top rating agencies. According to incomplete statistics, in 2021, Moody’s, Fitch and S & P downgraded the real estate enterprises on a large scale, and downgraded the Chinese real estate enterprises more than 250 times in a year. In this context, Moody’s and Fitch still maintain the “investment grade” rating of country garden, and S & P also gives country garden a BB + rating. An increase of one level is “investment grade”, and the outlook is “positive”.
the financing channels are unblocked, and many institutions maintain the “buy” rating
Under the current market environment, country garden has a reliable credit record and smooth financing channels. It is considered to be “one of the few large high-quality private developers basically unaffected by the liquidity crunch” and “one of the first batch of large private enterprises whose domestic credit bond financing channels have been unblocked since November last year”.
In December 2021, country garden issued two bonds, including RMB 1 billion corporate bonds issued on December 15, with a coupon rate of 6.3%, attracting the participation of more than 10 banks and non bank institutions. In addition, the company also successfully issued a supply chain ABS of RMB 284 million and 5.5% of the face value on the Shanghai Stock Exchange, ranking among the first batch of private enterprises after the opening of the window guidance.
In January 2022, Country Garden real estate group, as a co debtor, successfully issued two ABS in Shenzhen Stock Exchange, with an amount of 521 million yuan and 721 million yuan respectively, a total scale of 1.242 billion yuan, and a coupon rate of 5.3% and 5.5% respectively. As the first batch of private enterprises to successfully issue ABS this year, country garden has been recognized by regulators and investors, which also confirms the importance of regulators on the source of funds of high-quality real estate enterprises.
Meanwhile, country garden also announced on January 17 that it would repurchase a total of US $10 million of senior notes, including 4.75% notes with a total principal of US $5 million due in July 2022 and 7.25% notes with a total principal of US $5 million due in April 2026. The repurchase of bonds will undoubtedly help reduce the total liabilities of country garden and optimize the debt situation of the company.
Statistics show that during the year, country garden’s bonds of US $411 million will expire in January and US $700 million will expire in July respectively, and its available cash balance as of June 2021 exceeds 180 billion yuan (about US $29.4 billion), which shows that the company has strong cash flow and no worry about short-term debt repayment.
With the continuous positive news, UBS, Gf Securities Co.Ltd(000776) , Shenwan Hongyuan Group Co.Ltd(000166) and other Chinese and foreign market institutions are optimistic about the financial situation and future development space of country garden, saying to maintain the “buy” rating, in which UBS gives the target price of HK $9.8.
Gf Securities Co.Ltd(000776) believes that in 2021, with the intensification of credit differentiation in the industry, country garden maintained a better credit qualification than the industry while steadily reducing its liabilities. Specifically, the price of corporate US dollar bonds is strong, the company’s rating in the three major international rating agencies is stable, and thanks to the company’s solid cash flow, the company can make redemption arrangements for us dollar bills according to the capital market conditions, so as to stabilize the confidence of the capital market.
S & P pointed out in its latest report that country garden has successfully issued HK $3.9 billion of convertible bonds, which has a positive supporting effect on its credit. This issuance, together with the recent issuance of the company in the domestic market, shows that in the current volatile credit market, the company is stronger than the financing ability of developers at the same level.
