Our new issue thoughts on Xinyuan    Xinyuan announced a proposed 3-year USD bond (issue rating: NR/B-/B), withBloomberg reporting the IPT to be 9.125% area. We see the fair value of theproposed new issue at 8.6-8.7%. Bloomberg reported yesterday that China’sNDRC has stepped up approvals of property developers citing sources. Froman RV perspective, we see Oceanwide (issue rating of CCC+/B by S&P/Fitch)and Guorui (issue rating of B-/B by S&P/Fitch as comps, though we see highrisks of Guorui’s outlook being revised to negative from stable by at least onerating agency). These companies all have relatively small landbank sizes andare not big in contract sales amounts, and Xinyuan and Oceanwide bothpossess US projects. We think Xinyuan should be trading around 30bp tighterin YTW than Oceanwide for the same maturity, given Oceanwide’s one-notchlower difference in S&P’s issue rating and much higher leverage despite morediversified businesses. FANHAI 7.75% 2020s trade at ask price of 98.5withYTW of 8.4% as we write, while GUORUI 7% 2020P19s trade at ask 98.5andYTP of 8.2%. Thus, we see the theoretical fair value of Xinyuan’s proposed 3Ybonds at 8.1-8.2%, but after factoring a new bond concession of 50bp for newbonds in this high-supply market, we see the actual fair value at 8.6-8.7%.Looking at Xinyuan’s own curve, XIN 8.125% Aug 2019bonds trade at askYTM of 7.8% (Z+590bp) and XIN 7.75% Feb 2021s trade at ask price of 96.75and YTM of 8.9% (ask Z+692bp) as we write, implying a steep yield curve.There is about 3-months’ difference in maturity in XIN’s proposed 3-year bondvs. XIN 2021s, and assuming a 60bp difference for one-year, that would putthe proposed XIN 2020s at a fair value yield of 8.7%. We maintain our Hold onXIN 2019s and 2021s. Upside risks include conservative landbanking, betterthan-expected sales and/or margins. Downside risks include aggressivelandbanking, harsher-than-expected policy or tougher on-shore market, andworse-than-expected sales.

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