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Heavily indebted China Evergrande sells $1 billion notes for refinancing

By Clare Jim and Umesh Desai

By Clare Jim and Umesh Desai

HONG KONG (Reuters) - China Evergrande Group <3333.HK>, the country's top home builder added to its massive debt pile with a $1 billion seven-year bond on Friday that sold briskly due to its hefty yield.

The sale of 9.5 percent bonds due 2024 follows a $1.5 billion dual tranche issue earlier this week and will be used for debt refinancing by Evergrande, which is sitting on China Inc's second biggest debt pile.

Acquisition-hungry Evergrande has some $57 billion in debt, almost six times its market value. Only state-owned Petrochina <0857.HK> has more debt on its books.

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Evergrande does have $30.8 billion in cash, providing some comfort to shareholders, while plans for a mainland listing for most of its property assets have also raised hopes that it will reduce its huge leverage.

The senior notes due 2024 will carry an interest rate of 9.5 percent per annum. Demand was strong enough to allow the issuer to close the deal just hours after it was announced.

"It was a reverse enquiry style private placement and the issuer brought their own investors," said a banker close to the deal, referring to practice of bond investors approaching the company.

"We had the books covered before going to the market."

The offering received orders of $2.8 billion, an indication of the strong response to the issuance plan even after the company had raised more debt earlier this week.

The latest transaction as well as its sale of 3-year and 5-year bonds this week come after creditors recently approved amendments to its Evergrande's bond covenants to allow it to take on billions of dollars of additional debt.

Evergrande's net debt to EBITDA of 17.3 times dwarfs the industry median of 8.2, according to Thomson Reuters data.

The figure implies that it would take Evergrande 17.3 years or more than twice as long as the industry average to repay its debt at its current pace of cash generation.

The pricing of the bond was attractive relative to its existing bonds due 2022 which yield 8 percent, said Yin Chin Cheong, analyst at independent research firm CreditSights.

She said adding additional yield to these bonds for the extra maturity would give a fair value of 8.3 percent to the 2024 bonds.

"It is attractive at 9.5 percent for investors who are comfortable holding this name," she said.

But she has an "underperform" rating on the bond.

"We are not comfortable with this name."

Despite a stretched balance sheet, investors are keen on Evergrande's bonds ahead of its planned Shenzhen listing.

"Evergrande's high leverage should be partially eased after it receives the full proceeds from its 30 billion yuan equity-raising for its onshore subsidiary from new investors in 2017, as well as its ongoing restructuring in the capital market," Fitch said in a statement on Thursday.

Shares of Evergrande eased 1.78 percent, underperforming a flat broader market.

(Reporting by Clare Jim and Umesh Desai; Additional reporting by Donny Kwok; Editing by Edwina Gibbs and Kim Coghill)

 
 
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