China Property CREDIT CHINA PROPERTY. Onshore bond issuance at a record pace

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1 THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLE S REPUBLIC OF CHINA (THE PRC ) (EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO) China Property CREDIT CHINA PROPERTY bond issuance at a record pace China s homebuilders with an offshore bond market presence raised RMB114bn (USD18bn) via the onshore bond market so far in 1Q16, close to 50% of the RMB267bn (USD41bn) raised in 2015 Keith Chan Analyst The Hongkong and Shanghai Banking Corporation Limited keithkfchan@hsbc.com.hk We lower our 2016 China property USD HY issuance forecast to USD1bn from USD5bn and forecast a shrinkage of the HY bond universe to USD36bn by end-2016 from USD41bn (2015) Beware of policy tightening change our fundamental stance on the sector to neutral from overweight; top buy trading calls in 2Q16: AGILE, FTHDGR, GZRFPR, KWGPRO, TPHL and YUZHOU Record pace of onshore fund raising We witnessed stronger-than-expected fund raising dynamics in the onshore bond market via various formats (e.g., corporate bond, panda bond, private placement note and medium-term note) so far in 1Q16. To be specific, 63 Chinese homebuilders with an offshore market presence raised RMB114bn (USD18bn) from the onshore bond market, which is substantially above the USD1.8bn raised from the offshore bond market (public and private) and USD2.3bn raised from the offshore loan market. This figure also represents almost 50% of the RMB267bn (USD36bn) raised from the onshore bond market in 2015, and brings onshore bond outstanding to RMB392bn (USD60bn) by end-1q16, or more than 80% the size of the offshore bond space (USD74bn), which took more than 10 years to develop. We estimate the onshore bond pipeline at RMB300bn (USD46bn) as of 1Q16. Diminished offshore bond issuance, with a proliferation of onshore bonds 12,000 10,000 8,000 USDm 6,000 4,000 2,000 0 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 CNY bond issuance (USD-equivalent) Offshore USD/ EUR/ CNH/ SGD/ MYR issuance Note: Includes 63 China property developers with an offshore bond market presence. Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:

2 Record pace of issuance Developers prefer to issue onshore bonds due to their low cost, tax deductibility (versus offshore fund raising, which is not tax deductible), as well as no currency mismatch We revise our onshore bond universe size forecast to RMB700bn (USD108bn) by end-2016 from RMB500bn for Chinese homebuilders with an offshore bond market presence 2Q16 top buy trading calls: AGILE 19-17c, 20-18c, 49, FTHDGR 19-17c, 20-17c, GZRFPR 19-17c, 20-17c, KWGPRO Aug19-17c, 20-17c (new), TPHL 20-18c, YUZHOU Jan19-17c, Dec19-17c (new) bond market size is relevant Given the low funding cost, fund usage flexibility (could be used for general corporate purposes inclusive of land purchases), as well as income tax deductibility, the onshore bond market has emerged as the utmost important fund raising channel for Chinese developers with an offshore bond market presence. Using 1H15 financial data pro-forma for onshore/offshore bond issuance, we estimate onshore bonds represent 14% of developers funding mix and are set to become more relevant (i.e., a higher proportion in the debt funding mix) in Dissection of 1Q16 onshore bond issuance Corporate bonds, private placement notes/panda bonds and interbank market bonds (i.e., medium-term notes and commercial paper) accounted for RMB68bn, RMB25bn and RMB21bn of the RMB114bn raised from the onshore bond market so far in 1Q16, respectively. The table below shows the list of bonds issued so far in 1Q bonds play an instrumental role in developers debt mix trusts 12% bonds 14% Offshore loans 11% Offshore bonds 17% perpetuals 3% bank loans 43% Note: 1H15 pro-forma for onshore bond issuance from July 2015-to-date; includes 63 Chinese homebuilders with an offshore bond market presence. Source: Companies, HSBC 2. Bonds account for one-fifth of developers onshore debt* bank loans 60% perpetuals 4% trusts 17% bonds 20% Note: *1H2015 pro-forma for onshore bond issuance from July 2015-to-date; includes 63 Chinese homebuilders with an offshore bond market presence. Source: Companies, HSBC 2

3 3. bond market firing on all cylinders in 1Q16 (QTD) Approval USD issuer CNY bond issuer Issue date ticker Bloomberg Ticker Issue size (RMBm) Yield Tenor Type 证 监 许 可 [2015]2859 号 Joy City 中 粮 置 业 投 资 6-Jan CH COFCOP 21 3, % 5p3 AA+ C 中 市 协 注 [2015]CP501 号 Shimao 上 海 世 茂 股 份 6-Jan NA SHSHMA 17 2, % 1 AA CP NA Sunshine 广 西 万 通 6-Jan NA GXVTRE 19 1, % 3 AA P 100 证 监 许 可 [2015]3065 号 R&F 广 州 富 力 地 产 7-Jan CH GZRFPR 21 6, % 5p3 AA+ C NA Evergrande 恒 大 地 产 集 团 12-Jan NA EVERRE 20 10, % 4 AAA P 证 监 许 可 [2015]3170 号 China 华 南 国 际 工 业 12-Jan CH CSCHCN 19 3, % 3 AA+ C South City 原 料 城 证 监 许 可 [2015]1976 号 Wanda 大 连 万 达 商 业 12-Jan CH DALWAN 21 5, % 5p3 AAA C 证 监 许 可 [2015]2570 号 Poly RE 保 利 房 地 产 13-Jan CH POLYRE 21 2, % 5p3 AAA C 证 监 许 可 [2015]2570 号 Poly RE 保 利 房 地 产 13-Jan CH POLYRE 23 2, % 7p5 AAA C 上 证 函 [2015] 2211 号 Logan 深 圳 市 优 凯 思 13-Jan CH LOGPH 19 2, % 3p2 AA P 证 监 许 可 [2015]2884 号 Powerlong 上 海 宝 龙 实 业 14-Jan CH PWRLNG 21 2, % 5p3 AA C NA Shimao 世 茂 房 地 产 14-Jan NA SHIMAO 21 4, % 5p3 AAA PD 深 证 函 [2015] 732 号 Times 广 州 时 代 地 产 18-Jan NA GZTIME 19 3, % 3p2 AA P 证 监 许 可 [2015]2658 号 Greenland 绿 地 控 股 集 团 19-Jan CH GRNLGR 21 9, % 5p3 AAA C 证 监 许 可 [2015]2658 号 Greenland 绿 地 控 股 集 团 19-Jan CH GRNLGR 21 1, % 5 AAA C 证 监 许 可 [2015]3065 号 R&F 广 州 富 力 地 产 20-Jan CH GZRFPR 21 3, % 5p3 AA+ C 证 监 许 可 [2015]3148 号 SOHO 北 京 望 京 搜 候 20-Jan CH SOHOCH 19 3, % 3 AAA C 证 监 许 可 [2015]2193 号 Sunshine 广 西 万 通 20-Jan CH GXVTRE 21 1, % 5p3 AA C 100 NA Sunac 融 创 房 地 产 20-Jan CH TJSZD 20 1, % 4 AA+ C 证 监 许 可 [2015]3164 号 Longfor 重 庆 龙 湖 企 业 22-Jan CH LNGFOR 21 2, % 5p3 AAA C 证 监 许 可 [2015]3164 号 Longfor 重 庆 龙 湖 企 业 22-Jan CH LNGFOR 24 1, % 8p5 AAA C 上 证 函 [2015] 2468 号 CIFI 旭 辉 集 团 股 份 22-Jan CH CIFIHG 18 2, % 2p1 AA P 证 监 许 可 [2015]2947 号 Xinyuan 鑫 苑 ( 中 国 ) 25-Jan CH XYCNRE % 5p3 AA C 上 证 函 [2015] 1789 号 Aoyuan 奥 园 集 团 5-Feb NA AOYUAN % 3p2 AA P 证 监 许 可 [2015]2570 号 Poly RE 保 利 房 地 产 23-Feb CH POLYRE 21 2, % 5p3 AAA C 证 监 许 可 [2015]2570 号 Poly RE 保 利 房 地 产 23-Feb CH POLYRE 26 3, % 10 AAA C NA Financial 金 融 街 控 股 24-Feb CH FINSTR 21 2, % 5p3 AAA P Street 中 市 协 注 [2015]MTN421 号 Gemdale 金 地 ( 集 团 ) 26-Feb NA GEMDAL 21 1, % 5 AAA MTN 中 市 协 注 [2015]MTN422 号 Gemdale 金 地 ( 集 团 ) 26-Feb NA GEMDAL 21 1, % 5 AAA MTN 证 监 许 可 [2015]2884 号 Powerlong 上 海 宝 龙 实 业 2-Mar CH PWRLNG % 5p3 AA C 证 监 许 可 [2015]3164 号 Longfor 重 庆 龙 湖 企 业 2-Mar CH LNGFOR 22 2, % 6p3 AAA C 证 监 许 可 [2015]3164 号 Longfor 重 庆 龙 湖 企 业 2-Mar CH LNGFOR 26 1, % 10p5 AAA C 上 证 函 [2015] 2373 号 Country 碧 桂 园 控 股 2-Mar NA COGARD 21 4, % 5p3 AAA PD Garden 证 监 许 可 [2016]183 号 Oceanwide 泛 海 控 股 3-Mar CH FANHAI 21 2, % 5p3 AA C 中 市 协 注 [2015]MTN202 号 Vanke 万 科 企 业 11-Mar NA VANKE 21 1, % 5 AAA MTN 中 市 协 注 [2015]MTN203 号 Vanke 万 科 企 业 11-Mar NA VANKE 21 1, % 5 AAA MTN 证 监 许 可 [2015]2947 号 Xinyuan 鑫 苑 ( 中 国 ) 15-Mar CH XYCNRE % 5p3 AA C 证 监 许 可 [2016]280 号 Jingrui 景 瑞 地 产 15-Mar CH JINGRU 21 1, % 5p3 AA C 证 监 许 可 [2015]2416 号 Shimao 上 海 世 茂 股 份 17-Mar CH SHSHMA 19 2, % 3 AA C 证 监 许 可 [2015]1977 号 Gemdale 金 地 ( 集 团 ) 18-Mar CH GEMDAL 22 1, % 6p3 AAA C 证 监 许 可 [2015]1977 号 Gemdale 金 地 ( 集 团 ) 18-Mar CH GEMDAL 24 1, % 8p5 AAA C 证 监 许 可 [2016]183 号 Oceanwide 泛 海 控 股 21-Mar CH FANHAI 21 1, % 5p3 AA C 证 监 许 可 [2016]408 号 KWG 广 州 市 天 建 23-Mar CH TIANJC % 6p3 AAA C 证 监 许 可 [2016]408 号 KWG 广 州 市 天 建 23-Mar CH TIANJC 26 1, % 10p5 AAA C 中 市 协 注 [2016]MTN146 号 Wanda 大 连 万 达 商 业 24-Mar NA DALWAN 21 6,000 TBD 5 AAA MTN 113,760 Note: C stands for onshore corporate bond, P stands for onshore private placement note, MTN stands for onshore medium-term note, PD stands for panda bonds. Source: Companies, Shanghai Stock Exchange, Shenzhen Stock Exchange, HSBC 3

4 4. Both IG- and HY-rated names been actively issuing bonds in the last 12 months 5. Mix of onshore bonds issued by Chinese developers* RMBbn % 80% 60% 40% 20% 0% Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 bond issuance - IG Public corporate bond Private placement Note: Developers with an offshore bond market presence. *With an offshore bond market presence Offshore USD HY bond scarcity to stay We lower our offshore China property USD HY bond issuance forecast to USD1bn from USD5bn on the back of the onshore bond market activities. Taking into account USD3.9bn of redemptions (via maturity and announced calls), an additional USD2.4bn bonds to be redeemed via calls, the fallen angels from IG and the upgrades from HY, we forecast the end-2016 China USD HY property universe shrinking to USD36bn, a 12% decline versus the USD41bn as of The table below details the offshore HY USD bonds, which are redeemable in USD10bn-plus of China property USD HY bonds could be called/redeemed in 2016e Issuer Issue Call/ Issue Note maturity size date (USDm) Sunac China SUNAC /16/17-15c Jan Redeemed on 6-Jan-16 Evergrande EVERRE /19/2016 Jan Redeemed on 19-Jan-16, CNY-denominated, USD-settled Powerlong PWRLNG /25/ c Jan Redeemed on 25-Jan-16 Future Land FUTLAN /31/ c Jan Redeemed on 31-Jan-16 China SCE CHINSC /14/ c Feb Redeemed on 4-Feb-16 China Aoyuan CAPG /23/ c Feb Redeemed on 11-Feb-16 Renhe RNHEF 13 03/10/2016 Mar Redeemed on 10-Mar-16 Hopson HPDLF /16/ c Mar Redeemed on 17-Mar-16 China South City CSCHCN /17/ c Apr To be redeemed on 15-Apr-16 via announced call CIFI Holdings CIFIHG /15/ c Apr To be redeemed on 15-Apr-16 via announced call GZ R&F GZRFPR /29/2016 Apr To be redeemed on 29-Apr-16 via maturity Sino-Ocean SINOCE /13/ c May To be redeemed on 13-May-16 via announced call Greenland HK GRNLHK /18/2016 Oct To be redeemed on 18-Oct-16 via maturity Greentown GRNCH /04/ c Feb High chance of call, callable at from Feb-16 Yanlord Land YLLGSP /29/ c Mar High chance of call, callable at before Mar-16 and at afterwards Agile Property AGILE /28/ c Apr High chance of call, callable at before Apr-16 and at 100 afterwards Road King ROADKG /18/ c Sep High chance of call, callable at before Sep-16 and at afterwards Longfor LNGFOR /18/ c Oct High chance of call, callable at from Oct-16 Mingfa Group MINGFA /01/ c Feb Medium chance of call, callable at from Feb-16 Sunac China SUNAC /05/ c Apr Medium chance of call, callable at from Apr-16 Yuzhou YUZHOU /4/ c Oct Medium chance of call, callable at from Oct-16 Evergrande EVERRE /30/ c Oct-16 1,500 Medium chance of call, callable at from Oct-16 Modern Land MOLAND /04/ c Nov Medium chance of call, callable at from Nov-16 Central China CENCHI /22/ c Jun Low chance of call, callable at from Jun-16 Xinyuan XIN /03/ c May Low chance of call, callable at from May-16 Wuzhou WUINTL /26/ c Sep Low chance of call, callable at from Sep-16 China Properties CHINPR /16/ c Oct Low chance of call, callable at from Oct-16 10,526 Source: Company data, HSBC 4

5 7. China s USD HY property space to shrink to USD36bn by end-2016e 45,000 China property USD HY universe 42,000 USDm 39,000 36,000 33,000 30,000 End 2015 blaance 2016 gross issuance Maturity/ confirmed calls High chance calls Downgrade from IG HY upgrade to IG End 2016e balance 8. Substantial onshore bond issuance pipeline, as of Approval Offshore issuer issuer RMBm issuer s asset bond base % total assets rating Public issuance pipeline (for offshore HY names) 证 监 许 可 [2015]2818 号 Modern Land 当 代 节 能 置 业 股 份 1,000 80% AA 证 监 许 可 [2016]152 号 Wuzhou 无 锡 五 洲 国 际 装 饰 城 1,600 92% AA 证 监 许 可 [2016]509 号 Central China 建 业 住 宅 集 团 ( 中 国 ) 3,000 87% AA In process Gemdale 广 州 广 电 房 地 产 * 1,400 NA AA In process Road King 北 京 路 劲 隽 御 房 地 产 2,500 46% AA In process Times 广 州 市 时 代 地 产 集 团 3,500 98% AA 13,000 Private placement pipeline (for offshore HY names) NA Powerlong 上 海 宝 龙 实 业 发 展 3,000 63% AA 上 证 函 [2015]2599 号 Beijing Capital 首 创 置 业 集 团 10, % AA+ 上 证 函 [2016]41 号 Wuzhou 无 锡 五 洲 国 际 装 饰 城 4,000 92% AA NA Fantasia 花 样 年 集 团 ( 中 国 ) 3,000 51% AA NA Fantasia 深 圳 市 彩 生 活 服 务 400 NA NA 上 证 函 [2016]471 号 Agile 广 州 番 禺 雅 居 乐 3,000 12% AA+ 上 证 函 [2016]293 号 R&F 广 州 富 力 地 产 股 份 15, % AA+ 深 证 函 [2016]118 号 R&F 广 州 富 力 地 产 股 份 15, % AA+ NA Jingrui 景 瑞 地 产 ( 集 团 ) 3,000 75% AA NA Xinyuan 鑫 苑 ( 中 国 ) 置 业 4,000 NA AA NA Oceanwide 泛 海 控 股 8, % AA NA Gemdale 广 州 广 电 房 地 产 * 2,000 NA AA NA KWG 广 州 市 天 建 房 地 产 6,500 33% AAA NA Yuzhou 厦 门 禹 洲 鸿 图 地 产 2,000 55% AA NA Hydoo 赣 州 毅 德 商 贸 物 流 园 开 发 600 NA NA NA Times 广 州 市 时 代 地 产 集 团 3,000 98% AA 82,500 Panda bond pipeline (for offshore HY names) NA Hopson 合 生 创 展 集 团 15,000 NA NA NA Mingfa 明 发 集 团 ( 国 际 ) 3,000 NA NA NA China South City 华 南 城 控 股 10,000 NA NA NA Agile 雅 居 乐 地 产 控 股 15,000 NA NA NA KWG Property 合 景 泰 富 地 产 控 股 18,000 NA NA NA Yanlord Land 仁 恒 置 地 集 团 10,000 NA NA 71,000 Pipeline (for offshore IG names) 证 监 许 可 [2015]2973 号 Sino-Ocean Land 远 洋 地 产 5,000 81% AAA NA Greenland 绿 地 控 股 集 团 10, % AAA NA China Jinmao 方 兴 地 产 投 资 管 理 5,000 33% AAA 20, ,500 *Note: Gemdale Properties, Hong Kong-listed subsidiary of Gemdale Corporation, entered into an agreement for the acquisition of 广 州 广 电 房 地 产 in January 2016, according to a Stock Exchange of Hong Kong filing. Source: Shanghai Stock Exchange, Shenzhen Stock Exchange, HSBC 5

6 2Q16 top buy trading calls Taking into account the onshore bond issuance pipeline (Table 6), as well as relative value, we highlight the below USD HY bonds as our top buy trading calls in China s property space. Buy Agile Property s (AGILE; rated Ba3/BB-, bond rated B1/B+) AGILE 19-17c (103.5/104.5, 8.8%/7.7%-to-February 2017 call), 20-18c ( / , 8.4%/8.2%-to- May 2018 call), 49 (88/89, 10.6%/10.5%-to-maturity). Buy Fantasia s (FTHDGR; rated B2/B+, bond rated B3/B) FTHDGR 19-17c (103.25/104, 12.6%/11.7%-to-January 2017 call or 9.3%/9.0% to maturity), 20-17c (102.5/103.5, 13.8%/12.5%-to-January 2017 call or 9.7%/9.3% to maturity). Buy Guangzhou R&F s (GZRFPR; rated Ba3/B+, bond rated B1/B) GZRFPR 19-17c (105/ , 7.16%/6.37%-to-January 2017 call), 20-17c (105/ , 7.59%/6.83%-to- January 2017 call). Buy KWG Property s (KWGPRO; rated Ba3/BB-, bond rated B1/B+) KWGPRO Aug19-17c (105.5/106.5, 6.9%/6.1%-to-August 2017 call), 20-17c (105.5/106.25, 6.8%/6.0%-to- February 2017 call). Buy Times Property s (TPHL; rated B1/B+, bond rated B2/B) TPHL 20-18c (110.5/111.25, 8.2%/7.9%-to-March 2018 call). Buy Yuzhou Property s (YUZHOU; rated B1/B+, bond rated B1/B) YUZHOU Jan19-17c (105.25/106, 7.1%/6.2% to January 2017 call), Dec19-17c (106.5/107.25, 7.4%/6.9% to December 2017 call). Caveat: risk of policy tightening; change fundamental stance on China property to neutral from overweight With the surge in residential property prices in various cities, including Hefei, Nanjing and Shanghai and Shenzhen, tightening measures on the eligibility of home purchases, as well as mortgage downpayment ratio tightening on second homes, have been put in place by the municipalities of Shanghai and Shenzhen. With a material pick-up in land purchases (1Q16 land purchases up 58.5% y-o-y and HY developers 2016 contracted sales coming in 10% above 2015 actual contracted sales), balance sheet leverage is set to rise, in our view. We change our fundamental stance on China property to neutral from overweight; and would continue to monitor closely further tightening measures to be implemented (if any), as well as onshore bond issuance dynamics. 9. Material pick-up in land purchase activities RMBm 200, , ,000 80,000 40,000 0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 Known land acquisitions for developers in offshore bond space Note: China property developers with an offshore market presence. 6

7 Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Keith Chan Important disclosures Credit: Basis for financial analysis This report is designed for, and should only be utilised by, institutional investors. Furthermore, HSBC believes an investor's decision to make an investment should depend on individual circumstances such as the investor's existing holdings and other considerations. HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its credit research: 1) in corporate credit to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies and in the case of covered bonds to identify long-term investment opportunities based on country-specific ideas or themes that may affect the performance of these bonds, in both cases on a six-month time horizon; and 2) from time to time to identify trade ideas on a time horizon of up to three months, relating to specific instruments, which are predominantly derived from relative value considerations or driven by events and which may differ from our long-term credit opinion on an issuer. HSBC has assigned a fundamental recommendation structure only for its long-term investment opportunities, as described below. HSBC believes an investor's decision to buy or sell a bond should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of terms as well as different systems to describe their recommendations. Investors should carefully read the definitions of the recommendations used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the recommendation. In any case, recommendations should not be used or relied on in isolation as investment advice. HSBC Global Research is not and does not hold itself out to be a Credit Rating Agency as defined under the Hong Kong Securities and Futures Ordinance. Definitions for fundamental credit and covered bond recommendations Overweight: For corporate credit, the credits of the issuer are expected to outperform those of other issuers in the sector over the next six months. For covered bonds, the bonds issued in this country are expected to outperform those of the other countries in our coverage over the next six months. Neutral: For corporate credit, the credits of the issuer are expected to perform in line with those of other issuers in the sector over the next six months. For covered bonds, the bonds issued in this country are expected to perform in line with those of the other countries in our coverage over the next six months. Underweight: For corporate credit, the credits of the issuer are expected to underperform those of other issuers in the sector over the next six months. For covered bonds, the bonds issued in this country are expected to underperform those of other countries in our coverage over the next six months. Distribution of fundamental credit and covered bond opinions As of 28 March 2016, the distribution of all credit opinions published is as follows: 7

8 All Covered Companies Companies where HSBC has provided Investment Banking in the past 12 months Count Percentage Count Percentage Overweight Neutral Underweight HSBC & Analyst disclosures Disclosure checklist Company Ticker Recent price Price date Disclosure AGILE PROPERTY 3383.HK Mar , 5, 6, 7 FANTASIA HOLDINGS 1777.HK Mar , 7 GROUP CO LTD GUANGZHOU R&F 2777.HK Mar , 6, 7 KWG 1813.HK Mar , 6, 7 TIMES PROPERTY 1233.HK Mar , 7 HOLDINGS YUZHOU PROPERTIES COMPANY LIMI , 7 1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 29 February 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 January 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-us Market Maker in securities issued by this company and/or in securities in respect of this company HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues. Whether, or in what time frame, an update of this analysis will be published is not determined in advance. 8

9 Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July and as such, this report should not be construed as an inducement to transact in any sanctioned securities. For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at Additional disclosures 1 This report is dated as at. 2 All market data included in this report are dated as at close 28 March 2016, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 9

10 Disclaimer Legal entities as at 30 May 2014 Issuer of report UAE HSBC Bank Middle East Limited, Dubai; HK The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; TW HSBC The Hongkong and Shanghai Banking Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; DE HSBC Corporation Limited Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; IN HSBC Securities and Capital Markets (India) Private Limited, Level 19, 1 Queen's Road Central Mumbai; JP HSBC Securities (Japan) Limited, Tokyo; EG HSBC Securities Egypt SAE, Cairo; CN HSBC Investment Bank Asia Hong Kong SAR Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong Telephone: and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Fax: Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; Website: US HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch The Hongkong and Shanghai Banking Corporation Limited ( HSBC ) has issued this research material. The Hongkong and Shanghai Banking Corporation Limited is regulated by the Hong Kong Monetary Authority. This material is distributed in the United Kingdom by HSBC Bank plc. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN , AFSL ) for the general information of its wholesale customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No ). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. 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Where this document contains market updates/overviews, or similar materials (collectively deemed Commentary in Canada although other affiliate jurisdictions may term Commentary as either macro-research or research ), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). Copyright 2016, The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited. MICA (P) 073/06/2015 and MICA (P) 021/01/2016 [504791] 10

11 Global Fixed Income Research Team Rates Global Head of Fixed Income Research Steven Major, CFA EMEA Head of Rates Research, EMEA Bert Lourenco Subhrajit Banerjee Theologis Chapsalis Wilson Chin, CFA Chris Attfield Tom Nash Sebastian von Koss Frank Will Asia Head of Global EM Rates Research André de Silva, CFA Pin Ru Tan Himanshu Malik Dayeon Hong Esther Wen Americas Larry Dyer Credit EMEA Head of European Credit Strategy Jamie Stuttard Dominic Kini Ivan Zubo Michael A Ridley michael.a.ridley@hsbc.com Charlotte Edwards charlotte.edwards@hsbcib.com Asia Head of Global Research, Asia-Pacific Dilip Shahani dilipshahani@hsbc.com.hk Zhiming Zhang zhimingzhang@hsbc.com.hk Devendran Mahendran devendran@hsbc.com.hk Philip Wickham philipwickham@hsbc.com.sg Keith Chan keithkfchan@hsbc.com.hk Helen Huang helendhuang@hsbc.com.hk Desmond Kuang desmond.z.kuang@hsbc.com.hk Christopher Li christopherbli@hsbc.com.hk Anna Zhang anna.x.zhang@hsbc.com.hk Americas Head, North America Credit Strategy Edward B. Marrinan edward.b.marrinan@us.hsbc.com Jacob Kim jacob.x.kim@us.hsbc.com Alejandro Mártinez-Cruz alejandro.martinezcr@hsbc.com.mx Aaron T Gifford aaron.t.gifford@us.hsbc.com