China Jinmao Holdings Group Limited:Third perp of the year!Our thoughts on new issue

China Jinmao announced a proposal of USD perp NC6, with Bloombergreporting the initial price guidance of 5% area. This would be the third perpfrom Jinmao this year. The intended use of proceeds is for refinancing ofexisting borrowings and general corporate purposes. The proposed perpetualsecurities (BB rated by S&P) offer a weak step-up of 25bp in 11years’ time,with a subordinated structure. We see CHJMAO 5.75% perps (ask price: 104.6,YTC: 4.5%, G+264bp) which was issued in Jan of this year, as a reasonablecomparable; it is also subordinated in ranking and possesses a similar structurewith a first call date in Jan, 2022and a weak step-up of 25bp in Jan 2027. Wesee the fair value of the proposed new perps at 4.7-4.8% in ask YTC, given 1year and 10months’ difference in years-to-call and first step-up date.

    Aggressive landbanking YTD, which we partly attribute to management’s 2019goal of achieving contract sales of RMB100bn

    Jinmao has been aggressive in landbanking, which we partly attribute tomanagement’s high goal of RMB100bn of contract sales in 2019. Already in7M17, Jinmao acquired 16projects for a total GFA of 3.7mn sq m, withRMB58.6bn (attributable: RMB32.7bn), as of interim results. Management hasalso been on the look-out for potential primary land development projects,hence we expect its FY2017acquisitions amount to be high. Jinmao’s 9M17contract sales (including primary land) reached RMB37.8bn, up only 13% YoYand are lagging behind the simple average of +33% growth for China propertyIG and HY names that we track. CHJMAO’s 9M contract sales and land salesrepresented 65% of its full-year target of RMB58bn. But historically, its salescan be lumpy due to land and en-bloc office sales.On October 24, Jinmao filed an announcement on the HKEX that the board ofdirectors was informed that its CFO, Jiang Nan, was invited to visit theIndependent Commission Against Corruption (ICAC) in relation to aninvestigation “regarding an alleged contravention of Section 9of thePrevention of Bribery Ordinance (Cap. 201)”. The filing stated that before thevisit, there was also an execution of a search warrant by the ICAC in Jinmao’sHK office. Based on a lack of details and Jinmao’s SOE background (largeststakeholder is Central-SASAC backed Sinochem), our view is this incidentshould not have much impact on Jinmao’s operations and credit rating, as abase case.