Developers look outside China for financing

The mainland's large and medium-sized developers turned to offshore markets for financing in the first half of this year, taking advantage of lower funding costs and strong liquidity.

The trend is expected to continue in the second half, said analysts, although developers could face a more challenging loan market next year as the US Federal Reserve weighs an end to its bond-buying programme - a move that will tighten liquidity in financial markets and trigger a rise in interest rates.

Offshore loans registered to Hong Kong borrowers reached US$26.1 billion in the first six months, up 17 per cent on the same period last year despite the fact that many local borrowers, including developers, tapped the bond market for their financing, according to data provider Thomson Reuters.

In a separate survey, property data provider China Real Estate Information Corp said major mainland developers' syndicated borrowings denominated in both Hong Kong and US dollars jumped to the equivalent of about HK$40 billion in the first six months, up about 16 per cent when compared with the same period last year.

Steve Chiu, the chief financial officer and company secretary of small developer Yuzhou Properties, said borrowing offshore had become more attractive since the beginning of the year because of strong liquidity.

"Two years ago, only big players such as China Overseas Land or China Resources could get syndicated loans overseas," said Chiu. But since the beginning of the year, smaller developers with BBB ratings from international ratings agencies were also able to obtain loans from banks due to strong liquidity.

In April, Fujian-based Yuzhou announced a US$101.8 million equivalent three-year dual currency transferable term loan facility carrying an interest margin of Hibor plus 5.75 percentage points per annum. Small player CIFI last week also announced a US$156.5 million three-year syndicated loan to strengthen its war chest for future business development.