China Issuers Buy Back Bonds

Chinese companies have been buying back their offshore bonds in the past month, taking advantage of low cash prices at a time of economic uncertainty. According to IFR calculations, 11 Chinese issuers with bonds listed in Hong Kong or Singapore have announced bond repurchases totalling over US$540m in face value since the beginning of March. 

The deals took place in the open market or through private negotiation, but exclude tender and exchange offers.Opportunistic buybacks allow issuers to save on their funding costs and can help stabilise bond prices, giving investors some comfort in times of severe market stress.  

For example, SUNAC CHINA HOLDINGS saw its bonds gain more than a point on March 20, outperforming the market, after it announced a US$78.9m bond buyback. A banker said he has encouraged issuers who have bought bonds to make similar announcements.  

Most of the issuers making bond repurchases have come from the property sector, which relies heavily on offshore funding. In addition to Sunac, LANDSEA GREEN PROPERTIES, RONSHINE CHINA HOLDINGS, JINGRUI HOLDINGS, XINHU ZHONGBAO, GOLDEN WHEEL TIANDI HOLDINGS, BEIJING PROPERTIES (HOLDINGS) and XINYUAN REAL ESTATE have all announced buybacks. Other issuers include JIUDING GROUP FINANCE, FUFENG GROUPand CHINA SINGYES SOLAR TECHNOLOGIES HOLDINGS. 

Buying back bonds below par allows issuers to cut their finance costs. They may even book capital gains in some cases.Food additives producer Fufeng said the purpose of its bond repurchases was to cut financial expenses and gearing. Although none of the issuers disclosed the repurchase prices, the secondary market has provided good references. 

Between March 6 and March 13, Xinhu Zhongbao bought back US$7m of its 11.00% notes due March 14 2022. The bonds were bid at a range of 88.50–89.25 during the period, according to Refinitiv data.The Shanghai-listed developer was also able to print a US$200m bond in a club deal on March 24, even though the offshore bond market remained largely closed for Chinese developers and despite a downgrade by Moody’s a week before pricing.Issuers with looming maturities can make substantial savings by buying back their bonds at a discount.A case in point is Jiuding, which already bought back nearly two-thirds of its US$380m 6.5% guaranteed bonds due July 25 2020 since it began to make repurchases in January. 

The company disclosed on January 23 that it had repurchased US$85.01m of the bonds in principal amount. Then on March 20 it said it had bought a further US$22.4m and on March 25 it disclosed the purchase of an additional US$28.3m. Just last week, it said it bought a further US$97.57m during the period from March 19 to April 7.  

On the other hand, issuers could imperil their ratings if they buy back a lot of bonds far below par.Moody’s and S&P in March downgraded GEO ENERGY RESOURCESafter concluding that the Indonesian coal producer’s repurchases of US$111m of bonds in principal amount at a steep discount constituted a distressed exchange.