Property Giant Hysan's Borrowing Surges With Fresh $4 Billion Bond Issuance

Hong Kong property developer Hysan Development Company Limited HYSNY issued a prospectus for up to $4 billion of medium-term bonds Monday, more than 10 times its average medium-term debt tranche.

The new debt dwarfs the company’s previous borrowing amounts. Prior to the multi-billion-dollar debt issue, the company’s current average debt tranche for its 5-year or sooner debt was around HK$300 million ($38.5 million) with by far its largest a $400 million 2027 2.85% note maturing in 2027.  

The bonds are being issued in the form of zero-coupon notes that are heavily discounted to institutional purchasers, and are priced at a floating rate of forward interest. That means that purchasers of the notes are bullish about Federal Reserve easing now, since if interest rates fall then the bonds will go up in value as the discounted price becomes comparably more attractive to lenders.

The company plans to list the bonds on the Hong Kong exchanges at some point within the next 12 months.

Hysan said that it was issuing the medium-term debt for general corporate purposes. The bonds are unsecured and reliant on a guarantee by Hysan to repay. The notes were rated A- by Fitch Ratings earlier in the year. According to Fitch, the developer had HK$6.7 billion in cash and HK$4.6 billion in undrawn credit at the start of this year, which was enough to meet its short-term debt repayments.  

Fitch said that while it thinks Hysan is more liquid than most developers in Hong Kong right now, it forecasts the company’s average borrowing cost will spike to 3.3% in 2023 vs 2.2% last year. The ratings agency also noted that Hysan’s leverage had increased to 24.6% by the start of 2023 from 17.9% the year before.

“We think Hysan's liquidity position is solid and it has the resources and ability to reduce debt and improve interest cover via asset monetisation. However, there is uncertainty over the execution of its plans,” the ratings agency wrote.

In the note offering, the company indicated that its current repayments were set to peak in 2025 by three times from their current level and again in 2027 by nearly 8 times as its bank debt and other bonds become repayable.

In interim 2023 financials Hysan released in August, the company reported that its revenue and profit were down 9.3% and 12.2% respectively, in 2023. It also said that office rentals were at 89% capacity, quite a bit lower than Fitch's expectations of 94%. 

Bank of America Corporation BAC and UBS Group AG UBS are handling the debt issuance while Bank of China Limited BACHF, Credit Agricole SA CRARF, JP Morgan Chase & Company JPM, Mitsubishi UFJ Financial Group, Inc. MUFG BNP Paribas BNPQF, Citigroup Inc C, DBS Bank Limited, HSBC plc HSBC, Mizuho Financial Group Inc MFG and Standard Chartered plc SCBFF are acting as dealers of the notes alongside the lead issuers.

Shares of Hysan Development were off 1.4% in Hong Kong morning trading.

The financing comes at a hairy time for real estate developers and borrowers in Hong Kong, increasing numbers of whom have defaulted on prior years US dollar debt issuances. At the end of last month, China Evergrande Group EGRNF defaulted on its US dollar bonds and some investors fear that Country Garden Holdings Limited CTRYY may follow suit.

There have been some bright spots lately though. Last week, Sunac China Holdings Limited SNCNF became the first property developer to successfully restructure its offshore debt when a Hong Kong court granted it permission to reissue $10.2 billion in new debt.