Singapore"s Rich Tapped by China Developers: Asean Credit

Chinese developers, faced with

surging local borrowing costs and a cooling property market, are

tapping Singapore’s more than 100,000 millionaires with record

bond sales.

Private banks bought 79 percent of Central China Real

Estate Ltd.’s (832) S$200 million ($160 million) of notes last week.

The Zhengzhou, Henan-based developer paid a 6.5 percent coupon

on the three-year securities, less than the 8.5 percent yield on

$400 million of five-year U.S. dollar-denominated debt it sold

in May 2013. Yanlord Land Group Ltd., which builds luxury

residential complexes in China, placed 77 percent of its S$400

million sale last month with wealthy-client money managers.

Property companies in the world’s second-biggest economy

are turning to Asia’s largest wealth-management center just as

borrowing costs at home hold near a seven-month high and global

funds turn cautious on China. Singapore dollar bond sales have

more than tripled to S$19.8 billion in 2013 from a decade ago,

Bloomberg data show. There’s still room for growth as Boston

Consulting Group Inc. estimates firms in the island manage about

$800 billion in offshore assets.

“Private banks have shown strong interest in several
Singapore bond issues because they’ve offered attractive

returns,” said Melvin Lee, a Singapore-based senior vice

president at Fullerton Fund Management, which managed S$11.9

billion of assets as of March 31. “Foreign issuers are

generally able to get a lower cost of funding from the Singapore

bond market because there’s a lot of cash in the system waiting

to be deployed.”

Spread Blowout

In a bid to resurrect a slumping housing market, China’s

central bank last week told lenders to accelerate mortgage

growth. New-home prices rose in April in the fewest cities in 18

months as developers offered discounts and the economy slowed,

prompting the easing of property curbs in some places.

Sluggish construction and home sales are in part to blame

for economic expansion which was the slowest in six quarters in

the first three months of the year, helping to spark a blowout

in developer dollar-bond spreads this quarter that was the

second-largest among 13 emerging real estate markets tracked by

Bank of America Merrill Lynch indexes. The average yield premium

over Treasuries for Chinese builder debt swelled to 717 basis

points from 701 on March 31.

Redemptions from China equity and bond funds were the

highest in six weeks and more than two years respectively during

the second week of May, EPFR data show.

Less Volatile

Chinese real estate companies sold $6.9 billion of dollar

bonds last quarter, down 23 percent from the same period of

2013, data compiled by Bloomberg show. Foshan-based Country

Garden Holdings Co., which develops residential complexes and

community facilities in China, was the last builder to sell

notes in the U.S. currency, issuing $550 million of five-year

debentures at 98.989 cents on the dollar May 15. The notes were

trading at 99.25 yesterday, BNP Paribas SA prices show.

The yield on Yanlord’s S$400 million 6.2 percent debentures

due 2017 has ranged from 5.887 percent to 5.942 percent since

they were sold on April 28, Bloomberg-compiled prices show. The

Singapore-listed company’s $300 million 9.5 percent U.S. dollar

notes also due 2017 have experienced wider swings, with yields

ranging from 11.318 percent to 19.152 percent over the same

period.

Singapore’s market is less volatile because investors

typically buy and hold company debt rather than selling the

securities quickly for a profit, Fullerton’s Lee said. “It’s

more insulated than other markets in Asia,” he said.

Attractive Funding

The yield on China Vanke Co.’s S$140 million of 3.275

percent four-year notes sold in October fell to 3.296 percent

yesterday, the least since February 10. Yields touched a record

3.437 percent in April.

Despite the growth in Singapore’s local-currency bond

market, domestic companies still dominate sales. Foreign names,

especially Chinese investment-grade credits, allow investors to

pick up some extra yield, according to UOB Asset Management Ltd.

“Foreign issuers bring depth to the market, and they’re

able to secure more attractive funding,” said Adeline Tan, a

Singapore-based analyst at UOB Asset Management, which managed

some S$14.2 billion out of Singapore as of March 31. “These

Chinese names also offer more attractive yields over the usual

Singaporean issuers.”

Super Rich

Singapore dollar bond sales total S$10 billion this year

compared with S$8.7 billion the same period of 2013, according

to data compiled by Bloomberg. By way of comparison, baht-denominated sales in Thailand since Dec 31. total 264.6 billion

baht ($8.2 billion) while Asean domestic bond sales total $25.7

billion.

Singapore, Asia’s second-smallest country after the

Maldives, had 101,000 millionaires at the end of 2012, up 10.3

percent from a year earlier, according to Capgemini SA and Royal

Bank of Canada’s Asia-Pacific Wealth Report 2013.

The island is poised to surpass Tokyo as the Asian city

with the most ultra-high-net-worth individuals within a decade

as its stature as a financial center increases with the region’s

economic growth. It should be home to about 4,878 people with

$30 million or more in assets excluding their principal

residence by 2023, a 55 percent gain from 2013 and trailing only
London globally, according to a March report from Knight Frank

LLP.

Credit Positive

It’s a “target audience that companies look to engage,

particularly those that are higher yield issuers,” said Swee Ching Lim, a Singapore-based credit analyst at Western Asset

Management Co. “This might be even more so for issuers that

don’t appear to have any immediate links to Singapore from a

business and or listing standpoint.”

The request by People’s Bank of China to improve lending

efficiency is “credit positive” for developers, especially for

those with reputable brands and mass-market appeal, Moody’s

Investors Service analysts led by Hong Kong-based Kaven Tsang

said in a May 16 report.

“An expedited loan-approval process would lead to more

timely disbursement of funding for home buyers and subsequently

boost developers’ cash collection rates,” Tsang said.

Companies which may benefit most include China Overseas

Land Investment Ltd., Poly Real Estate Group Co., China Vanke

and Shimao Property Holdings Ltd., Moody’s said.

The latest directive from China’s central bank marks a

reversal from the last four years, when the country enacted

restrictions on its housing market to curb soaring prices.

First-tier cities including Beijing, Shanghai, Shenzhen and

Guangzhou raised the deposit required to acquire second

properties to 70 percent last year.

The Singapore dollar has climbed 0.74 percent in the past

year, Asia’s third-best performance. The Thai baht has dropped 8

percent, while Indonesia’s rupiah slumped 14.6 percent.

“I’m cautiously optimistic about seeing more deals,” said

Clifford Lee, the Singapore-based head of fixed income at DBS

Group Holdings Ltd. “There’s a sizable amount of Singapore

dollar deposits in the system, some S$500 billion, and a good

portion of this belongs to retail investors seeking plain-vanilla Singapore dollar investments.”

To contact the reporter on this story:

Tanya Angerer in Singapore at

tangerer@bloomberg.net

To contact the editors responsible for this story:

Katrina Nicholas at

knicholas2@bloomberg.net;

Sandy Hendry at

shendry@bloomberg.net

Sandy Hendry

Singapore"s Rich Tapped by China Developers: Asean Credit