Country Garden is among the savviest repeat issuers in Asian high yield, and is perhaps the leader among a cluster of Chinese real estate companies that have been frequent issuers in a range of currencies during the past 10 years. Its latest deal, a $750 million 10-year non-call five bond issued in January, was typical: a 7.5% yield, more than decent funding for a BB-rated emerging market corporate issuer, and with the order book covered 24 times over.
Other landmarks over the years have included a $900 million seven-year non-call four global in 2011, deals of $400 million (Reg S) and $550 million (with 144a) the previous year, and an early example of a convertible bond denominated in RMB and settled in dollars, as well as equity deals such as a HK$3.102 billion block trade in Hong Kong in 2012.
In particular, it is known for its efforts to cultivate a global following in its paper. In the January deal, 31% went to the US and a further 21% to Europe.
So how does this impact bookrunner selection? Recent Country Garden deals mix local and international names – the January 10-year had Goldman Sachs and JP Morgan as bookrunners alongside Bank of China and Industrial and Commercial Bank of China as joint leads.
“The biggest advantage of having the international banks is their experience and knowledge of international business and multinational corporations,” says Estella Ng, Country Garden’s CFO.
“We need them for the execution. Local banks know the local culture because of the long history and extensive networks in the country. They can understand a local customer like us, and how regulators make decisions.”
The distinction between the roles of international and local banks is arguably sharper in China than elsewhere, as to a large extent regulation stops crossover taking place between the two camps.
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| Estella Ng, CFO, Country Garden |
“The distinction still exists,” Ng says. “Local banks still cannot provide all services in other markets. And local government and policy mean it is not easy for internationals to penetrate into the market.” This attitude has often led Chinese issuers to appoint a great many lead managers to a deal – eight or nine are not unheard of, and often on relatively small transactions, to the considerable annoyance of international banks.
Country Garden has not tended to do this – four is a fairly frugal selection for a Chinese issuer on a $750 million deal – perhaps because deals with a multitude of bookrunners are down to the fact issuers tend to use some of them as unofficial cornerstone investors rather than core investment bankers. Country Garden, having a wide investor following, has not needed to take this route.
“We look at several factors when we select bankers,” says Ng. “We look at service, size and financial strength. They have to be financially strong or we will be restricted by the regulators. The fee must be competitive.
“Location is another. We try to find one with a branch locally, or close to a project location. And then knowledge of the banker: one who can be a good sounding board, who can help with our strategy and objectives.”
The issuer tends to stick with favoured and familiar names: Goldman and JP Morgan have been on most key international deals over the years, sometimes joined by Deutsche. For local joint leads, “a newcomer that joined the last transaction had a long-term relationship through construction loans”, she says.
“Since the financial crisis, we noticed international banks being less available for liquidity, because fundamentally the way banks can do business has changed. Banks need more collateral and buffers than they did.”
There is more to Country Garden’s needs than the capital markets. “As we grow, we need more transactional banking services,” Ng says. “The property business is capital intensive, so cash is very important. It can be the biggest factor limiting us, and over-stretching can be fatal. We have a structure to pool cash and improve funding.”
Like Lenovo, the company has some expenses in dollars while revenues are chiefly in RMB, although as Country Garden has expanded into Malaysia, the sources of revenue have begun to diversify. “We welcome the internationalization of the RMB, and a stronger currency will benefit us,” she adds.
