Chinese developers, burnt by stock market crash, enjoy cheap onshore bond issuance

The mainland's developers are finding succour in record-low interest rates for onshore bonds at a time when their shares are being battered in the stock market rout.

Highly indebted Evergrande Real Estate, the country's second-largest developer by sales, on Tuesday priced its 6.8 billion yuan (HK$8.6 billion) four-year unguaranteed notes at 5.3 per cent and its 8.2 billion yuan seven-year bonds at 6.98 per cent.

These are the lowest rates the company has ever paid on bonds, Evergrande said in a statement. In February, the company issued US$1 billion offshore senior notes at 12 per cent per annum.

Another developer, Longfor Properties, said it priced the first tranche of its 2 billion yuan five-year onshore notes at 4.6 per cent. The nation's biggest homebuilder China Vanke also announced its plan to issue 9 billion yuan of onshore bonds with tenures of up to five years, with interest rates yet to be decided.

"At least 30 developers are preparing (to issue bonds onshore)," said Powerlong Real Estate president Hoi Wa-fong, adding that his firm will submit an application soon. "If supply increases, interest rates on bonds will probably rise," he told the South China Morning Post.

The reopening of the domestic bond markets to developers last year and the central bank's four interest rate cuts in seven months are luring mainland property firms away from the offshore bond market, where international investors have been wary of mainland developers since Kaisa Group's defaults.

"The bond market offers another channel for developers to raise funds, which is positive for their long-term outlook," said Yi Huaqiang, an analyst from Huarong Securities.