China's Junk-Bond Market Creaks Open With a $400 Million Sale

Published 12 January 2023, 13:16:18.687 GMT

(Dow Jones) -- HONG KONG -- A Chinese commercial property company sold U.S. dollar bonds on Thursday with yields topping 12%, reopening the market for junk debt from the country after a wave of defaults last year.

Dalian Wanda Commercial Management Group Co., which operates shopping malls across China and is controlled by Chinese billionaire Wang Jianlin, tested investors' appetite for risk this week with a two-year bond offering by one of its units.

The unit sold bonds with a $400 million face value and an 11% coupon. The securities were sold at 97.6 cents on the dollar, which enabled the deal to be priced to yield 12.375%. The new debt was rated BB by Fitch Ratings and Ba3 by Moody's Investors Service, levels that sit in the highest category of speculative-grade ratings.

The transaction could inspire other Chinese real-estate firms to come back to the table to discuss potential deals, some investment bankers predicted. But Leonard Law, a senior credit analyst at research firm Lucror Analytics, said investors should be wary about reading too much into the deal.

"I can't definitely say that the offshore bond market has reopened for property developers," Mr. Law said.

Many investors dumped Chinese high-yield dollar bonds last year, after residential-property giants China Evergrande Group, Kaisa Group, Sunac China and many of their peers defaulted on their international debt. New junk-debt issuance slowed to a trickle as bond prices collapsed and yields soared, making it too costly for most companies to borrow.

The average yield on outstanding junk dollar bonds from Chinese companies that haven't defaulted hit a record high of 33% in October 2022, according to an ICE BofA index that tracks them.

In November, Chinese authorities unveiled a series of measures designed to help surviving property developers obtain access to financing, lowering their default risk and sparking a junk-bond rally. That has taken the average yield for sub-investment-grade Chinese dollar bonds down to about 17%.

Dalian Wanda Commercial Management Group's business is different from that of residential apartment sellers such as Country Garden Holdings Co. and its peers. The former describes itself as the world's largest commercial-properties holding, managing and operating enterprise, that manages hundreds of Wanda Plazas across China. Proceeds from the debt sale, which was led by Credit Suisse, will help refinance the group's existing debt.

While sales of Asian investment-grade bonds have been on a tear so far this year, investors are likely to remain cautious when it comes to high-yield bonds, said Freddy Wong, head of Asia Pacific fixed income at Invesco.

Any fresh issuance in the Chinese dollar junk-bond market will be skewed toward companies with stable fundamentals, he said. "For now, the market is not telling you that they are fully ready," Mr. Wong added.

By Frances Yoon

--Matthew Thomas contributed to this article.