India markets closed

China Evergrande units sell $1.8 billion bonds, coupons up to 13.75 percent

By Clare Jim and Julia Fioretti

HONG KONG (Reuters) - China Evergrande Group said on Wednesday it sold $1.8 billion in senior notes with coupons as high as 13.75 percent. Chairman Hui Ka Yan bought $1 billion of the offer.

The debt-laden property developer said in a filing the amount of the two-year, four-year and five-year dollar bonds was $565 million, $645 million and $590 million, respectively.

Hui and his wholly owned company - Xin Xin (BVI) Ltd - each bought $250 million of the four-year notes, which offer 13 percent interest.

They also each bought $250 million of the five-year notes, which offer 13.75 percent interest.

The two-year notes carry interest of 11 percent.

The proceeds will be used to refinance existing offshore debt, the company said.

Evergrande, China's second-largest property developer by sales, has been under pressure to raise funds. Sources told Reuters last month the firm was seeking to raise about $1.5 billion using its Hong Kong office tower as collateral.

Evergrande, which has one of the highest debt ratios in the industry, had offshore debt of $16.4 billion as of the end of June.

The chairman's purchases raised some questions, said Charles Macgregor, the Singapore-based Asia head of Lucror Analytics.

"We find this issue and the chairman's involvement to be further evidence of a poor corporate governance framework at China Evergrande," Macgregor said.

"The optics of the company raising debt capital at time when it is declaring large dividends, some of which are then reinvested in this high-coupon company debt, are very poor."

In August, Evergrande proposed a 14.7 billion yuan dividend payout for the 2016 and 2017 financial years. Lucror Analytics estimated that Hui's share is more than 10 billion yuan ($1.44 billion).

Asia's high-yield bonds were trading lower on Tuesday on news of Evergrande's large issuance and high coupons.

The bonds were assigned a B credit rating by ratings agency S&P, and a B2 rating by Moody's service.

Evergrande's "uneven liquidity profile and high leverage remain the key constraints on the rating. Its strong market position, sales execution, and recovering margins offset these weaknesses," S&P said in a statement.

S&P analyst Matthew Chow, speaking on a conference call on Tuesday, said he was concerned about Evergrande's alternative financing, including trust loans and entrusted loans, which accounted for more than 50 percent of its total debt.

Credit Suisse and China CITIC Bank International are joint global coordinators for the Evergrande deal.

Chinese property developers are struggling with higher debt costs as rising U.S. interest rates push up financing costs for high-yield borrowers.

Compounding the problem, China's red-hot property sector is slowing, with homes sales falling in September for the first time since April.

($1=6.9657 Chinese yuan renminbi)

(Reporting by Clare Jim and Julia Fioretti; Editing by Darren Schuettler and Neil Fullick)