Developer Country Garden Holdings has responded to a Chinese government call to boost bond issuance and plans to sell up to 500 million yuan ($74 million) worth of onshore paper with inbuilt credit risk protection.
Securities brokerages will issue credit default swaps or credit risk mitigation warrants for the bonds to make them more attractive, sources have said.
There has been little corporate bond activity from Chinese real estate developers after much of the sector became gripped by a liquidity squeeze last year.
The credit crunch, triggered by tighter debt cap rules, has pushed some major developers such as China Evergrande Group into crisis, rattling investor confidence in the sector and the health of the Chinese economy.
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Credit Protection Contracts
Authorities asked Country Garden, Longfor Group and Midea Real Estate – three major private developers which are financially healthy – to issue bonds this week to shore up confidence, sources have said.
Country Garden said in a filing on Tuesday it would issue a three-year puttable bond, which gives creditors the option to sell back after the first and second year, adding that the bond had an indicative yield range between 4.5% and 5%.
China Securities Finance and CSC Financial will issue credit protection contracts of less than one year for the bond, it said.
Separately, Longfor this week issued 402 million yuan of supply chain asset-backed securities which were linked with credit protection warrants.
Referring to that issue, the Shenzhen stock exchange said in a statement on Tuesday that credit protection warrants are an innovative tool to help private sector developers with debt financing.
- Reuters, with additional editing by George Russell
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