How China high-yield structures are standardizing

Author: Danielle Myles | Published: 27 Jan 2011

High yield in China is growing rapidly. But the need to accommodate joint venture (JV) structures and limit debt at subsidiary level has led to an equally fast development of terms and covenant packages.

Real estate made up the majority of Chinese high-yield offerings in 2010. Out of 16 deals sold in the PRC during 2010, 12 were by real-estate companies.

Since Beijing banned the industry from raising capital via the equity markets in early 2010, the bond market has become the only fundraising channel for Chinese property companies.

And high-yield real-estate deals have become standardised, with around 90% following very similar structures.

Covenants

Covenants have been evolving for the last 16 months and have changed in two key areas. All have offshore guarantees by restricted subsidiaries with no onshore PRC guarantees. And almost all have share pledges.

Increasingly, property projects in the country are so big that no single...