Its years-long love affair with stocks on the rocks, corporate China is turning to debt.
Many of mainland China's major companies are issuing billions of dollars of new corporate bonds, bucking the global aversion to debt. The trend is helped by expectations of a rising yuan, which would goose returns for foreign bondholders and has helped Chinese companies issue bonds under less-costly terms.
At the other end of the spectrum, hedge funds have become the lender of last resort to a group of less-established, cash-strapped Chinese companies -- loans that sometimes come at a heavy price to the borrower.
Other routes to capital have suffered at the hands of China's ailing stock market, skittish bank lenders and Beijing policy makers hoping to tame growth and slow inflation. The benchmark Shanghai Composite Index has declined about 55% this year.
'The equity market is pretty much closed,' says Neil Ge, who has been appointed to run Credit Suisse's soon-to-be launched securities entity in China. 'So for corporations to raise money, the only way is to tap the bond markets.'
The broadened landscape could tempt more Chinese companies to pile more debt onto their balance sheets. But longer term, the development opens up another money-raising avenue for China's corporations, even as it establishes a new market for investors globally.
Mainland China's corporate-bond issuance has jumped nearly 53% year to date, compared with the same period in 2007, with Chinese companies selling bonds worth about $25 billion, according to Thomson Reuters. Bankers say their China pipelines remain flush for the next few months. 'We are expecting issuance to be twice as big as it was last year,' Mr. Ge says.
China's bond market is still tiny in comparison with the U.S., which has sold $1.2 trillion in bonds this year. But issuance in the U.S. has dropped 41% from last year, according to Thomson. In Japan, corporate-bond issuance has fallen 6% in dollar terms. The credit crunch has lowered demand for higher-yielding, higher-risk bonds, while corporations of all stripes have come under pressure to reduce debt on their balance sheets.
China has helped send Asian corporate-bond issuance to record levels, according to Thomson. Proceeds from corporate debt totaled $91.01 billion year to date, up 3.6% from a year earlier.
In July, Beijing North Star Co., a publicly traded property company partially controlled by the Beijing city government, sold about 1.7 billion yuan, or about $248 million, in five-year bonds. Earlier in the year, Shenzhen Development Bank Co. issued bonds totaling 6.5 billion yuan. And oil producer PetroChina Co. and China Merchants Bank Co. are seeking approval to put on the market new bonds valued at as much as 90 billion yuan.
Western investors in particular are drawn to the debt because of the rising yuan, which would increase the value of interest payments while giving Chinese issuers fewer reasons to offer higher rates, says one Hong Kong-based hedge fund manager. Beijing North, for example, offered investors a coupon rate of 8.2%, while Shenzhen Development Bank is paying 6.1%.
While the bulk of these bonds are sold domestically, foreigners can purchase a limited supply of these bonds through the Chinese government's so-called QFII, or Qualified Foreign Institutional Investor, program.
China's corporate-bond market has also enjoyed a regulatory boost, though it is unclear how much further efforts might go. Last year, the country's stock-market regulator, the China Securities Regulatory Commission, hammered out new rules allowing publicly traded companies in China to sell corporate bonds over the same Shanghai-based system that distributes initial public offerings to retail investors.
Western investment banks are eager to grab the underwriting business, but few are eligible to do so. Chinese regulators require them to have an approved venture on the mainland and first obtain an underwriting license there. For this reason, UBS AG dominates among Western banks, although Credit Suisse is hoping to follow suit.
Chinese property companies are among the biggest issuers, as a weakened domestic real-estate market has put further pressure on their finances, says an investment banker at UBS Securities, the bank's Chinese entity.
The more cash-strapped companies, which had been counting on IPOs that were scotched by declining stock markets, have been able to get financing only through private deals with hedge funds, which are charging hefty rates in return for capital.
Hedge funds active in private debt include Milwaukee's Stark Investments and New York City's D.E. Shaw Group, as well as the internally run hedge funds of large banks, including Merrill Lynch & Co. and Deutsche Bank AG. The funds are hoping to obtain better returns in private deals than are possible at the moment from stocks.
'The market being what it is, the only thing they've got left is private deals,' says Peter Churchouse, a fund manager at LIM Advisors, a hedge fund in Hong Kong.
Because such deals aren't usually publicly disclosed, data on amounts and terms are hard to come by. But in many cases, say hedge-fund managers, the loans can be expensive. Hedge funds say rates on some deals have risen to the high teens, and in some cases exceed 20%. Before markets convulsed last year, privately placed convertible bonds in Asia typically commanded coupon rates of between 8% and 10%, hedge fund managers say.
Capital controls on the mainland mandate that these private loans are denominated in foreign currency and reside offshore.
Some deals contain what are known as 'ratcheting provisions' that allow debtholders to purchase unspecified amounts of equity at discounts over time, say people familiar with the terms, potentially giving them larger stakes of equity than business owners intended.
Some Asian fund watchers worry that the terms could invite a crackdown on foreign firms. A decade ago in the U.S., loan deals that gave lenders ever-higher equity stakes became known as 'death spiral convertibles.' In several instances in the U.S., companies later sued the lenders, alleging the bondholders sold the shares short to push down prices so they could acquire large chunks of equity. Shorting amounts to a bet that shares will fall.
Hedge funds say terms in China typically aren't as harsh. Typically, lenders can't wind up with a controlling stake in a company. Also, Asian regulators have imposed lockups on transactions involving pre-IPO financing. 'Regulators want to make sure that pre-IPO investors aren't advantaged above public shareholders,' says one analyst at Stark Investments.
Fund watchers are monitoring one borrower, Guangzhou property company Evergrande Real Estate Group, to see how such private debt deals pan out. In July, the internal hedge funds at Merrill Lynch and Deutsche Bank pumped about $500 million into the company, according to people familiar with the matter. It was their second infusion in recent months into the company after a hoped-for IPO faltered, spurring its need for cash. Terms of the loans aren't clear, and Evergrande didn't respond to calls or emails for comment.
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жܽӴΣйҵʼתծС
й½˾·ʮԪĹ˾ծȯȫⱳծĴƱۡйҵֵܵԤڵֵ֧֡ߺծȯߵĻرʣй˾Գɱϵ͵ծ
һ棬ֽȱйСҵȲԳ߽ʱҪ߰Ĵۡ
йش&#12289;߷Ŵ׼ͱƶϣ&#12289;ͨͣж׼֤ۺָۼƵﵽ55%ҡ
Ϊ(Credit Suisse)ڻʹ˾˵ĸţ(Neil Ge)˵еĴŻѾϡ˶ҪʵҵԣΨһ;ծȯг
Ĵ󱳾ܻʹйҵͨծʡгֱ仯ΪйҵٳһΪȫͶ߽һµг
ɭ·͸(Thomson Reuters Corp.)ʾй½˾ծȯԼΪ250Ԫȥͬ˽53%нʿʾ󼸸µծȯмƻŵúţ˵ԤƷжȥ
йծȯгȹģȻСѾ1.2Ԫծȯɭ·͸ʾķжȥͬ½41%ձԪ㣬˾ծķм6%ŴΣ˶Ը&#12289;߷ծȯͬʱиҵĹ˾Ž͸ծѹ
ɭ·͸ƣйƶ£޹˾ծķﵽ˴¼ˮƽķܶﵽ910.1Ԫͬ3.6%
7£ʵҵ(Beijing North Star Co.)17ԪԼ2.48ԪծȯʵҵǱвֹɷݵзز˾Щʱڷչ(Shenzhen Development Bank Co.)ܶ65Ԫծȯйʯ(PetroChina Co.)(China Merchants Bank Co.)Ҳ뷢ܶߴ900Ԫծȯ
һλԳ˵ͶڹծȯΪֵϢļֵйзȱɿߵʡ磬ʵҵƱΪ8.2%ڷչеƱΪ6.1%
ܴ󲿷ծȯڹۣʻǿͨйĺϸͶ(QFII)ƹһЩծȯ
йĹ˾ծгõ˼ܲƶƶܷչ̶ֳȡȥ꣬й֤ᷢ¹棬й˾ͨϺ֤Ͷ߽״ιļ(IPO)ϵͳ۹˾ծ
ͶзǳϣȾָҵ񣬵߱ʸĹ˾ǷëǡйܻҪͶڴ½ӵеõ׼ĺʻȻó֤ԭʿ(UBS AG)Ͷжɧ
֤ȯι˾(UBS Securities)һλͶмҳƣйķز˾ķзڷزгĵǵʽ׽⡣֤ȯʿйĹ˾
һЩ˾ʽ״ΪţͨIPOʵϣΪеıֻͨ˽ļԳʣԳ𳣳ȡܸߵʡ
Ծ˽ļĶԳֻܶStark InvestmentsŦԼеD.E. Shaw GroupԼ(Merrill Lynch & Co.)͵־(Deutsche Bank AG)ȴڲӪĶԳĿǰЩ˽Ӫ׿ܻñȹϸߵĻرʡ
۶ԳLIM AdvisorsĻ׿ٵ(Peter Churchouse)˵гֵزֻʣ˽ļˡ
˽ļͨṫ¶ϢѵõԳƣ£ĳɱܸߡԳʾһЩ׵Ѿ16%19%֮䣬ʱ20%Գƣгȥתǰ˽ļתծȯƱͨ8%10%֮䡣
й½ʱƾ˴ཻҽУںɡ
֪ʿƣһЩװνġ(ratcheting provisions)ծȯ߽ۿۼ۹һĹƱܻӵгҵԸĸĹɷݡ
һЩ޻ҵʿЩܵ¶Ժ⹫˾Ĵ10ǰ÷ſ˳и߹ɷݵĴ׳Ϊġ޵׶תծȯļУ˾ԷſϣָծȯչƱѹͼ۸չĹɷݡ
Գʾйͨô̡һ˵˲ܻһҹ˾ĿعȨң޼ܻIPO֮ǰʽ趨ڡStark InvestmentsһλʦʾܻϣȷIPO֮ǰͶ߲ȳййƱĹɶơ
ʿйעһҽݵķز˾ز(Evergrande Real Estate Group)˽˽ļ׵ĳɹ̶ȡ֪ʿ͸¶7£ֺ͵־еڲԳù˾ṩԼ5Ԫʽ𡣺زݻеֽѾǽҶԳڶù˾עʡвزҲδظҪĵ绰ʼ
