By staff reporters Qiao Xiaohui and Cao Zhen

China Vanke Co. Ltd. (SZSE: 000002, 200002), the country’s largest listed property developer, announced September 2 that it would sell 4.5 billion yuan in corporate bonds in order to alleviate pressures on its capital chain.

In May, Vanke got approval from China Securities Regulatory Commission (CSRC) to issue up to 5.9 billion yuan in bonds. The company had said earlier that proceeds would improve the company's debt structure and supplement its capital flow.

Facing tighter credit controls and a sales slump, China’s capital-thirsty developers are shifting to corporate bonds as a funding alternative. However, since commercial banks last October tightened regulations on guaranteeing corporate bonds, developers have faced more hurdles in selling bonds.

A senior manager from a rating institution told Caijing that without government backing, developers’ bond issues would hardly get an investment rating. But an official from the CSRC said that compared to IPO and refinancing, the government has been encouraging companies to turn to corporate bonds for financing, in the current market conditions.

So far, China has 17 corporate bonds listed in the Shanghai and Shenzhen exchanges, including three issued by real estate developers Poly, North Star and Gemdale. Another developer, COFCO Property (SZSE: 000031), also announced it would issue 1.2 billion yuan in bonds in the Shenzhen Stock Exchange on September 4.

In a September 2 statement, Vanke said it would sell 3 billion yuan in collateralized notes with a rate of between 5.5 and 6 percent, and 1.5 billion yuan in non-collateralized notes with a rate between 7 and 7.5 percent. The sale of non-collateralized notes may increase by up to 1.4 billion yuan.

Each five-year corporate bond will have a face value of 100 yuan. Subscription will start between September 5 and September 9. The collateralized notes and non-collateralized notes are rated AAA and AA+ respectively, the highest ratings among current bonds issued by real estate developers.

In the first six months of 2008, Vanke reported net profits of 2 billion yuan, up 24 percent year-on-year. The company’s cash balance was 15 billion yuan at the end of June, while its asset-liability ratio soared to nearly 68 percent, according to the company’s half year financial report.

1 yuan = 14 U.S. cents