Agile Group Holdings Ltd
China | Property – Fixed Income
Conclusion and recommendation
Following the non-call of the Agile 8.25% PERP callable July 2018, Agile is raising a USD senior bond to repay the existing syndicated loan from Hang Seng Bank. The available NDRC quota is USD600m but the expected issue size is USD300m – 1) we think that is to match the syndicated loan amortization and control the borrowing costs to <=8.5% and 2) the management has implied another issuance by end2018 to use up the NDRC quota before applying for fresh ones.
The said Hang Seng syndicated loans totaled HKD6.7b and will amortise 30% every 6-monthly, the next deadline in Nov 2018. To recap, Agile’s cash (RMB30 b)/short term debt (RMB27 b) as at Dec 17 = 1.1x. It has also raised about RMB 6.7b in 2018 through USD bonds/loans and HKD loans. Despite the bulky maturities in 2018, we think Agile should meet all debt obligations. This may have to come at the expense of the land banking ambition as some of the cash from contracted sales will be used to repay onshore loans/trust loans instead, as the management expects the NDRC quota will be restricted to refinancing offshore borrowings only, and not onshore.
Such curtailment of land banking plans is not particular to Agile only. From conversations with large-mid size developers, the onshore liquidity is tighter-than-expected. We expect many to cut back on expansion plans despite buoyant YTD contracted sales.
The current IPG of 8.5% re-prices the existing Agile curve, that is about 100-150bps tighter, so we think Agile 5.125% 2022 (SELL recommendation) will be the most vulnerable to re-pricing. The IPG also placed the new Agile (issue rating Ba3/BB) yield similar to lower-rated peers such as Logan, KWG, CIFI, Yuzhou, etc(issue rating B1/B+), etc . We think the IPG is attractive and recommend a BUY for the new issue at fair value of 8-8.5%.