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Vanke gauges investor appetite for dollar bond sale

By Wang Ying in Shanghai | China Daily | Updated: 2013-03-06 07:50

China Vanke Co, the nation's largest home builder, has launched a series of investor roadshows in Hong Kong, Singapore and London, in anticipation of issuing its first dollar bond - in another sign of the property giant's determination to explore overseas markets.

The Shenzhen-listed company has hired a multinational team of six investment banks - Bank of China (Hong Kong), Germany's Deutsche Bank Group, Singapore's DBS, the UK's HSBC PLC, US giant JP Morgan and Switzerland's UBS - to arrange the events.

Vanke's overseas subsidiary, Bestgain Real Estate Ltd, will be in charge of the bond issuance, Xinhua News Agency reported.

Vanke was given a BBB+ credit rating by Standard & Poor's and Fitch, and Baa2 by Moody's on Monday, making it the highest-rated company among Chinese developers.

Fitch said that as a "large nationwide player", Vanke was less likely to be affected than some of its local rivals by new government plans to apply a 20 percent capital gains tax on home sales in China given its "broad project mix, geographical coverage and high margins".

Su Xuejing, an analyst from China Securities Co, said: "The positive ratings will further lower the bond issuing costs for Vanke. Although the scale and purpose of the bond issuance are not clear yet, the fundraising may have something to do with Vanke's international development."

Xue Jianxiong, an analyst from China Real Estate Information Corp, said it was a wise decision to raise funds overseas because the cost of international financing is less than half of that in the domestic market.

"Taking a strengthening yuan against the US dollar into account, the financing costs will be even lower," said Xue.

However, others questioned the timing of the non-RMB bond launch, suggesting that the possibility of more quantitative easing by the US government and the latest tightening policies announced by the Chinese government to rein in property market, are likely to dampen foreign investor enthusiasm for dollar debt.

CIFI Group, a Shanghai-based, Hong Kong-listed property developer, shelved its US dollar bond issuance plan after Spring Festival, due to widely divided investor opinions toward pricing expectations, according to a report in the Shanghai-based Oriental Morning Post.

However, over the long term, analysts expected a bond by Vanke - with its leading position in China's property market - would deliver investors a solid and stable yield.

"As long as China continues with its massive urbanization program, domestic developers are ensured a high growth future," said Chen Sheng, vice-president of the China Real Estate Data Academy.

In May 2012, Vanke started its overseas adventure by purchasing a 73.9 percent stake in Winsor Properties Holding. In late January, it announced plans to move trading of its non-renminbi B shares from Shenzhen to Hong Kong to boost liquidity.

"The experience gained in the mature and well-regulated Hong Kong and US markets will prove precious for them," said Chen.

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