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Big China firms’ bonds better: ING

(HONG KONG) Investors in Chinese property bonds should adjust their portfolios in favour of larger, diversified firms and cut their exposure to smaller developers which are focused on fewer cities, ING Bank said in a report yesterday.

The bank advised bond investors to remain invested in bigger firms like Shimao Property Holdings, Agile Property Holdings and Hopson Development Holdings, and said it expected less bond issuance from large developers this year.

It also recommended that investors pare positions in bonds issued by Greentown China Holdings and Shanghai Real Estate due in 2013.

Tightening credit conditions in China, growing risk aversion in global markets, a property-sector slowdown in some Chinese cities and concerns about fresh bond supplies have caused a widening of credit spreads in the Chinese property sector recently, the report said.

‘Despite our long term positive outlook on the sector, spreads are likely to stay wide in the near term due to soft market sentiment,’ it said.

‘However, we do not see any immediate credit-specific problems, especially for large developers.’

Bonds issued by firms with higher ratings, large land banks and diversified geographic exposure were worth buying because of their strong sales and resilience to property-sector downturns in selected cities, it said.

ING analyst Steve Chow said that spreads on Shimao’s bonds maturing in 2016 and on Lai Fung Holdings’s bonds maturing in 2014 had widened less than the spreads on other Chinese property bonds due to their respective credit strengths.

He expects more bond offerings from Chinese property companies this year, with small and medium developers bearing a low BB and B credit rating seen as the primary source.

Firms that had initial public offers last year are also potential bond issuers in 2008, he said.

Large firms, with the exception of Country Garden Holdings Co and Agile Property, are likely to make few issuances in 2008 because they are either highly geared or have prudent expansion strategies, he said.


Source: Reuters (Business Times 15 Jan 08)


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