June 19, 2017 / 2:20 AM / a year ago

China issuers pounce on loophole to print short-term bonds

* Companies rush out short-dated bonds in fear of further rule tightening

By Carol Chan and Ina Zhou

HONG KONG, June 19 (IFR) - Growing scrutiny over offshore Chinese bond issues gave added impetus to a rush of short-term financings last week, with another $800 million of dollar notes hitting the market on Thursday.

The latest public offerings of US dollar notes with tenors of under a year point to concerns that mainland regulators may tighten rules even on short-dated offshore debt.

The deals came days after the National Development and Reform Commission, the country’s economic planning agency, published a statement that criticised five Chinese issuers for failing to pre-register their offshore bonds plans.

Greenland Holdings Group, rated Ba1/BB/BB by the three international agencies, priced $500 million 363-day Reg S senior unsecured notes at par to yield 4.00 percent, well inside initial guidance of 4.25 percent area. The newly priced bonds were the Chinese property developer’s second sale of short-dated dollar bonds in just two months.

Meanwhile, Hainan Airlines Holding priced a $300 million offering of 364-day Reg S senior unsecured notes at par to yield 5.50 percent, below initial guidance of 5.75 percent area.

Very short-dated bonds have taken off recently as a way for Chinese issuers to avoid restrictions on offshore bond issuance.

Bonds with maturities of less than one year do not need to be registered with the NDRC, while getting NDRC approval for longer-dated paper has become difficult in recent months, especially for real estate companies and local government financial vehicles.

In response, property developers started raising very short-dated US dollar bonds to meet their offshore refinancing needs.

Last month, Greenland Holding and Modern Land (China) printed 364-day private placements, raising $320 million and $100 million, respectively. Greenland’s were priced at 3.85 percent and Modern Land’s at 6.50 percent.

Then, earlier this month, Fantasia Holdings Group, rated B2/B+ (Moody’s/S&P), sold $350 million 364-day notes at par to yield 5.50 percent via public offering, while Ronshine China Holdings privately placed $150 million 364-day bonds at par to yield 6.50 percent.

Last week’s issue from Hainan Airlines, part of the acquisitive HNA Group, showed that the borrowing restrictions have spread beyond the property sector.


Issuing debt at maturities of less than one year allows borrowers to address immediate funding needs, but also leaves them under pressure to refinance further down the line.

Given the sudden popularity of very short-dated notes, there are rumours in the market that NDRC may close the loophole and require pre-registration also for bonds with maturity of less than one year.

“I think this is why issuers with high refinancing needs are rushing to the market to issue this kind of bonds. If the loophole is closed, they may not be able – or at least may need to go through more processes – to get deals done,” one banker said.

Another banker involved in Greenland Holding’s latest 363-day bond deal said that a recent NDRC statement criticising five issuers for failing to pre-register plans to issue offshore bonds was a sign that the rules may be tightened.

However, the chatter has so far not deterred the plans of issuers or demand from investors.

Greenland Holding’s majority-owned Hong Kong-listed unit Greenland Hong Kong Holdings held investor update meetings in Hong Kong last Friday via Credit Suisse and HSBC, ahead of a potential US dollar bond offering. The market expects the company may issue bonds with a tenor below a year, given its refinancing needs. The company has $500 million of bonds maturing on August 7.


Investor demand, especially from private banks, has been good for very short-dated bonds.

Hainan Airlines’ 364-day bonds drew final orders of over $500 million from 58 accounts, with 66 percent of the buyers being private banks. Final statistics for Greenland Holding’s deal were not available at the time of writing, but books were said to be $1.2 billion before the announcement of final price guidance.

Guotai Junan International was sole global coordinator and bookrunner for Hainan Airlines transaction.

BOC International, Haitong International and JP Morgan were joint global coordinators, joint lead managers and joint bookrunners for Greenland Holding’s deal.

The five companies criticised in a June 12 NDRC statement were China Water Affairs, China South City, Mingfa (Group), Ping An Real Estate and China Mengniu Dairy.

The regulator urged the five to comply with the registration process as soon as possible. The NDRC also warned that, in the future, companies failing to pre-register offerings of offshore bonds will be added to a national blacklist.

In the past seven months, the five companies issued offshore vanilla bonds and convertible bonds, as well as privately placed notes.

The NDRC implemented new rules in September 2015 requiring issuers to register plans to sell offshore bonds before and after pricing them.

However, bankers are still confused as to precisely what types of securities and issuers fall under the new regime.

“The rules governing offshore debt issuance are very ambiguous and have some grey areas. NDRC may need to streamline the regulations,” another DCM banker said. (Reporting by Carol Chan and Ina Zhou; Editing by Vincent Baby and Daniel Stanton)

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