New Issue Review : Ying Li International Real Estate SGD 4Y 7% Senior Bond

Chong Qing Attacks ! with Bo Xilai nicely incarcerated, the market turns to a SGD bond issue.

Reasons : For refinancing / including their convertible bond which has a call in 2013 / general corporate purposes

Lots of good things to say about them by marketing banks.

– Ying Li is a Grade A office and retail mall developer focused in prime locations of Chongqing. Their current properties include Ying Li International Finance Centre (Office and Retail), Future International, Zou Rong Plaza and others.

– Their key office tenants are DBS, OCBC, Deloitte, Capitaland, KFC, Qatar Airways, JCDecaux with its retail malls tenants ranging from Fendi, Nike, Tommy Hilfiger, Adidas, Lotte, New World Department Stores

– They have a diversified range of relationship banks with Standard Chartered and OCBC being their main foreign banks and ICBC, CCB and Huaxia Bank being their main local banks with current lending relationship.

– They have an experienced management team of nearly 20 years of experience in Chongqing across all disciplines with Mr Fang Ming (Chairman and CEO) having 19 years of experience in the property development industry and is the Vice Chairman of the Chongqing Municipal General Chamber of Commerce, President of the Real Estate Chamber of Chongqing Municipal Federation of Industry and Commerce,

 – Sound corporate governance where they are ranked 25th in the 2012 Governance and Transparency Index which is the highest ranking among China companies listed on SGX ahead of Singapore Technologies (26th) and Capitaland (30th)

– Key Financial summary: 506% yoy growth in revenue and 21% yoy growth in net profit in 2011. Net gearing level of 58% debt-to-equity and 34% debt-to-asset as at 30 June 2012. More than 7.00x interest coverage for the 6 months ended 30 June 2012

Taken from UBS email.

My summary

  • The company was listed in Singapore on 26 September 2008 via a reverse takeover of Showy International.
  • The market cap has fallen significantly  from its peak of CNY6.8 billion (SGD 1.1 bio)  to its current SGD 735 million today.
  • Revenues are rising quite phenomenally with analysts expecting CNY1,444 (SGD 280 mio) this year compared to CNY769 million last year.
  • In 2011, the company incorporated a load of subsidiaries and subsidiaries of subsidiaries.

It is likely that, like Nam Cheong, Ying Li has seen substantial mark to market gains on its holdings to see its assets grow but their cash flow is not keeping up. Current liabilities up 2.9 times 2009-2011 compared to total asset growth of 1.7 times.

Someone says Ying Li should be considered in the Chinese high yield real estate segment. I agree till I saw China YuanBang, also listed in Singapore, domicile in Bermuda and 50% owned by 1 man. For a company 10% the size of Ying Li, their revenues exceed Ying Li’s.

Then I got to thinking about comparables provided by the sales people.

SHUION 8 15     SHUI ON DEVELOPM        SG6S73978214    8       N.A.    N.A.    01/2015        SGD     103.85  6.113  %
CENCHI 10.75 16 CENTRAL CHINA RE        XS0771842878    10.75   N.A.    B+      04/2016     SGD     106.55  8.518%
PCRTSP 6.375 15 PERENNIAL CHINA SG6W55985405    6.375   N.A.    N.A.    09/2015        SGD     103     5.234

(All indic IB prices from Bloomberg as of 1 Nov 2012)

Maybe there is a bigger world out there.

And there is.

I went through the USD bond offerings of the high yield chinese property companies and am unpleasantly dismayed by Singapore’s lack of due diligence.

Yanlord (B+/B1) 2017 is trading at >8%, mind you this company is a much bigger operation than Ying Li. Even Agile ((BB/Ba2)  2017 is >7%.

For bigger and better known companies, I say Ying Li at 7% is expensive. It is easy to compare now because USD interest rates are about the same as SGD rates.

Buy if you must because Singaporeans go ga-ga over yields above 6%, not realising that there is a whole world of high yields outside this island state.

Good luck.