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.
- 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.
The selling point of this bond is the growth potential of Chongqing and the future development. No doubt, Chongqing has pretty decent growth rate compared to other parts of China, and a huge population to support. But for a nation to move forward, attention has to be given to tier one cities likes Shanghai and Beijing. And it is this sort of attention that made the real estate prices in tier ones higher. As such, developers are moving further away from those areas, and into tier two cities where land is much cheaper.
However, a longer term trend is not fitting into that scenario. Demand is not growing at the same rate of supply. According to an estimate, the highest vacancy rate in the country is at a whopping 40%. Of which, the top six cities in this ranking comes from tier two cities. Compare this against offices in Beijing and Shanghai, where more than 95 % are occupied.
The logic is simple. Investors will chase after “assets” that have demand and growth potential (that’s where price appreciation and the subsequent profit comes from). And in the near term, people will flock to bigger cities for investment. That’s where they get the bang for their bucks. And what is left, will be unwanted developments in tier two and three cities.
Prior to the launch of this, my estimate was for a 9% paper. It is shocking that 7% is used as initial guidance, and luring in the ignorants who continue to think that above 6% is good yield. So, if one cannot convince an investor to buy, they will confuse. And if that fails, they will con. Where are we on this bond? I can’t say for sure. But I certainly do not hope to see the “CON” stage being played out.
There is an underlying sense of desperation that is running throughout the finance sector. Desperate for yield, to see returns keep up with inflation and to preserve whatever semblance of savings left. Thus regardless of the many risks (known or unknown) there will be be money flooding any ‘investment’ that is providing anything above 6%.
With uncertainty abounding around, habits die hard and quite frankly a investment in China despite its many drawbacks is one of familiarity, habit and hope. Thus for the more risk averse, investing in china makes some sort of sense and comfort, considering it is the 2nd largest economy in the world, with a huge population base (which if can be transformed into an economy based on consumption) that can make an impact. And of course there is the singapore based Jim Rogers who has been touting china for years.
However, there are many things that stand in the way of China despite all its promise. The first would the political leadership change that is currently ongoing. Who that is taking charge and which department is going to be important as the economy on china is driven by its leadership. The second is the sheer size of china and the fact that the disparity of wealth is not being shared equally. Thus the coastal areas (tier 1) of china would be at loggerheads with the inner cities (tier 2, 3 and beyond). When there is a potential fault line of fragmentation, historically, china would go isolationist. So if this fault line were to rupture, hard not to see china going isolationist again. Third is that the banks in china (real estate is closely related to banks) are now a ticking time bomb, the big ones had to raise capital last year just to meet capital adequacy requirements which might be good or bad (depending of if the PBOC was trying to forestall a disaster that is similar to japan in the 80s or just trying to raise capital to stregthen balance sheets). Those are just to name a few issues that have to be kept in mind.
Thus my conclusion is be smart in choosing where to park money not all 7% yields are equal. I agree with tradehaven that there is a whole world of high yields outside this island state, so do some digging. Cause i sure hope that being ‘con’ is something i do not want to worry about.
P/S: I am a china bear and i do not see china being able to maintain what it did in the past 40 years.
Being a bit philosophical here.
Do you realize that in Maslow’s hierarchy of needs, we revert to innocence in the end?
The basic assumption that we are creatures of good ? And incapable of ill will ? Except to satisfy own’s ego ?
Just a thought.
*YING LI DECIDED NOT TO PROCEED WITH PROPOSED TRANSACTION*
Looks like they will probably pay up for a USD issue.