APAC Credit Research Musings 28 October 2024

Number 28 of 101 ways to move money abroad

The Chinese are a creative bunch in finding ways to move or raise money offshore. I’ve recently learnt that 内保外貸 – onshore security for offshore debt - is so passe after authorities caught on that it could be a disguised way to “legally” funnel cash offshore. Instead, somewhat newer, albeit been around since pre-pandemic days, is to pledge “large” onshore investment properties for a “small” onshore loan that is tied to a larger “unsecured” offshore loan. The offshore and onshore loan lenders – who may be different branches of the same bank - won’t release security over the onshore asset unless the “unsecured” offshore loan is repaid first.

These “onshore-offshore dual tranche" structures are now potentially coming back to haunt cash strapped developers looking to sell onshore investment properties. It limits potential bidders to those who have offshore cash to buy the whole offshore structure and repay the offshore loan, leaving out potentially a large section of onshore buyers. Is this why it has been hard for the likes of Shui On, Vanke to flog off supposedly prime investment properties to meet their looming debt maturities?

Last week, credit research reviewed Lai Sun Development’s full year results reiterating a view that it needs to sell down its prime Hong Kong property investments to repay debt due in next two years amid the prolonged property slump. Its mainland China focused subsidiary Lai Fung and its bank lenders will need to find a way to deal with its HKD 3.28bn “off balance sheet pledged” offshore loan due in March 2026.

GLP still has options to repay its due-June 2025 bonds as we wrote couple weeks ago, even if it fails to print a relaunched at 10.375% IPG 3-year deal this week after its initial attempt to launch a 3.5-year sub-10% deal failed last week. Proceeds for the new deal would be used to tender for its USD 1bn due-June 2025s.

We are trying some new ideas for the monthly China property tracker, splitting into a report on performing and post-workout names and another on distressed and in-restructuring names. Feel free to leave me comments on how we can improve relevance to our readers.

Outside of China, we covered troubled Australian casino operator Star Entertainment, which appears to be playing its cards right – at least from the gaming regulator’s eyes – since former Crown CEO McCann was appointed head.