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