7 year bond 9.5% versus perpetual bond 5.4%


Chinese firms have issued some $52.6 billion worth of U.S. dollar bonds in the first quarter, up 72% from the previous three months, according to Dealogic, and nearly five times the amount from the first quarter of 2016. The surge has come as Beijing has tightened curbs on capital outflows, making it harder for Chinese companies to use their yuan earned domestically overseas. Those companies looking to make acquisitions abroad, or even just pay back existing dollar debt, are increasingly turning to the U.S. dollar markets to raise funds.

bankers say much of the demand for Chinese dollar bonds is coming from Chinese investors who have stowed money overseas. The pent-up demand for those bonds is raising concerns that some riskier Chinese firms are able to issue offshore debt too cheaply, at yields that aren’t far enough above those for safer, blue-chip companies. “Spreads [for Chinese high-yield debt] are very narrow relative to investment grade, so the compensation isn’t a good one,” said Andy Seaman, London-based chief investment officer at Stratton Street Capital

In mid-March, one of China’s largest and most indebted property developers, China Evergrande Group , priced three dollar bonds in Hong Kong within a week for a total of $2.5 billion, which the company says it will use to refinance existing debt. Evergrande’s latest issues include a $500 million, three-year bond with a 7% coupon; a $1 billion, five-year bond with an 8.25% coupon; and a $1 billion, seven-year bond with a 9.5% coupon. While those yields look “punchy,” they are still too low considering Evergrande’s junk rating

Lenovo Group Ltd., the world’s largest personal-computer maker by shipments, issued five-year bonds worth $500 million with a 3.875% coupon and $850 million of 5.375% perpetual bonds that have no maturity date. On Friday, the company added $150 million to its perpetual-bond issue, bringing the total to $1 billion.

It’s coo coo crazy out there, with 2000 square foot apartments in good buildings in places like Shenzhen going for $5 million or so. And it’s not as though the empty buildings have improved that much.

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