Chinese real estate developer Sino-Ocean has raised US$200 million from a three-year bond backed by a standby letter of credit (SBLC).

Analysts suggest that this kind of credit-enhanced issue may set a precedent for other Chinese property developers battling difficult market conditions, prompting them to seek similar financings.

Issue features

The Sino-Ocean issue is backed by an SBLC from China Zheshang Bank's Hong Kong branch. It is one of the joint global coordinators, joint lead managers and joint bookrunners in the issue.

The credit-enhanced green notes due 2025 will bear interest from April 2022 at the rate of 3.8 per cent per annum.

The real estate developer intends to use the net proceeds to repay its existing medium and long-term external indebtedness due within one year and in accordance with its green finance framework.

Property slowdown

The issue may encourage other Chinese homebuilders to look for similar financings amid a property-sector slowdown in China, but they may find it more difficult.

Sino-Ocean's sales decline during the slowdown has been less severe than that of its peers, with January-February 2022 combined sales down 18 per cent on a year-on-year basis against a 40-50 per cent decline at many peers.

SBLC benefits

The SBLC as a credit-enhancement measure has been increasingly recognised and adopted by Chinese enterprises as the issuing bank becomes jointly and severally liable for the payment of principal and interest of the bond upon the bond's maturity date.

Chinese bond issuers usually use SBLCs provided by financial institutions to enhance their own credit rating with the aim of reducing the interest rate and issuance costs of the bond.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.