Mainland developers to offer dim sum bonds in HK

Real estate developers on the Chinese mainland are offering privately sold bonds in the Hong Kong market as they seek alternative sources of financing.

After early reservations, Hong Kong investors have begun to respond well to mainland developers' offers of dim sum bonds - which are bonds denominated in renminbi and issued in Hong Kong - according to the newspaper The Economic Observer, citing a source from the financial services company Morgan Stanley.

The source said Hong Kong investors have become more welcoming toward developers from the mainland. Even so, some investors are staying away from realty developers' offers of bonds.

On July 19, the Shanghai-listed realty developer Gemdale (Group) Co Ltd raised 1.2 billion yuan ($189 million) - 200 million yuan more than it had planned - by offering dim sum bonds with 9.15 percent yields through an overseas subsidiary.

That marked a turning point for Hong Kong investors, who showed that they were ready to embrace developers' dim sum bonds after keeping their distance from them for 18 months, said Kerry Lam, a Shanghai-based private investment consultant.

"The trend is likely to continue into the future," said Dickie Wong, research manager at the Hong Kong-based Kingston Securities Ltd.

In Hong Kong, financing costs are much lower than on the mainland, making the city's bond market attractive to mainland developers, Wong explained.

On the other hand, Hong Kong investors are being drawn to the bonds' relatively good interest rates; in general, yields in the city are extremely low, Wong said.

To many investors, the 9.15 percent yield offered on Gemdale Group's bonds was appealing, especially compared with the 5 percent yields on most bonds sold in Hong Kong, Lam said.

The popularity of mainland developers' bonds will largely depend on their ratings and yields, Lam said.

If more developers with good credit offer dim sum bonds in Hong Kong, that will benefit both investors and developers, Lam said.

The cost of bank loans has decreased in recent months after the People's Bank of China reduced the country's benchmark interest rates in June. Even so, obtaining credit is not easy.

Lam said bonds remain attractive because they usually offer a cheaper means of raising money than do trusts or other channels.

Zhang Liangjun, managing director of the China operation of the property service company Cushman & Wakefield Inc, said that mainland real estate developers are contending with reduced cash flows, and many are under pressure to refinance and deal with large property inventories.

For the first half of the year, 17 developers expect to report losses, 22 expect higher profits and 13 expect lower profits, according to industry performance forecasts.

Analysts said many developers are offering discounts on newly built homes to boost their sales revenue and to improve cash flow.

Contact the writers at wuyiyao@chinadaily.com.cn and oswald@chinadailyhk.com

(China Daily 08/03/2012 page13)