Modern Land takes multiple green strides to stay in the black
Beijing-based developer plans to issue green bond on Shenzhen bourse
Modern Land, the Hong Kong-listed developer has always been a trend-setter of sorts in China’s highly competitive property sector. At a time when financing options are becoming increasingly difficult for mainland developers due to the various restrictions, Modern Land has not only been able to charge a premium, acquire land easily and also ensure adequate financing for its projects.
The Beijing-based firm is planning to float green bonds worth up to 2 billion yuan (HK$2.3 billion) on the mainland bourses, company officials told the Post in an interview.
Modern Land’s plans come at a time when other developers are finding it difficult to raise funds from China’s exchange-regulated bond market due to the unprecedented property market tightening.
It was also the first mainland Chinese real estate firm to issue an offshore green bond in October this year. Green bonds are bonds designed to raise funds for new and existing projects that carry environmental benefits.
Set up in 2000, Modern Land opted for a “green, comfort and energy-efficient” path in the early 2000s to differentiate itself from peers. Its residential developments are known for green technologies such as smog purifiers, noise reduction and other systems that enable a comfortable temperature and humidity environment. Two of its projects in Beijing and Nanchang were conferred with the three-star green residential building in operation rating. Currently there are only nine such projects that are operational in China.
The company has secured a 2 billion yuan green bond quota on the Shenzhen Stock Exchange, an unusual achievement given that the bourse has since October shunned most of the other developers, in an effort to curb developers’ ability to acquire land at record prices.
China in November allowed only one real estate bond to be sold on the bourses, worth 1.48 billion yuan, according to Bloomberg data. Green bonds worth 195 billion yuan have already been issued in the onshore and offshore market by Chinese companies this year, accounting for 40 per cent of the global total.
“Most of the green bonds were issued by companies in the clean energy and electric car sectors. But in the property sector we were the first. The regulators also want to set an example,” says Kenneth Yeung, financial controller of Modern Land.
In April, the developer sold a five-year 1 billion yuan, 6.4 per cent coupon in onshore market. In October, it became the first mainland developer to issue dollar denominated green bonds by issuing US$350 million of senior notes due in 2019 at an interest rate of 6.875 per cent. That cost compared to the 12.75 per cent coupon dollar bond it sold two years earlier.
Yeung said the cost reduction was not due to the “green” factor, but due to the changed macro-environment. “Onshore and offshore ‘green’ factor alone has not yet brought a discount,” he said adding that, “the benefit has mostly been in terms of reputation.”
Being able to sell bonds under such a harsh environment is in itself a creditable achievement, the company said.
Going “green” brings multiple benefits, officials said. The company’s flats were sold at a 20 per cent premium(over nearby ordinary projects) in markets with cheaper prices, such as Hefei and Xiantao, and a 13 per cent premium in markets such as Shanghai.
Installing green technologies only adds to the overall cost by 50 to 600 yuan per square metre, be it in Shanghai or Xiantao, Zhang Peng, the company’s president said. A 13 per cent premium in Shanghai means each square metre of homes sold in Shanghai is more expensive by 4,000 yuan. The benefits are manifold, they said.
Going green also helped the developer to acquire land in various cities more easily, a critical ability at a time that developers are finding it increasingly difficult to acquire land.
“Many local governments prefer green buildings. For particular plots they would ask bidders to have some ‘green’ qualifications. That would greatly reduce competition for us, “ Yeung said, adding such buildings also get government subsidy.
“Going green is not as costly as many think. Even mass products can be attached with many green features. It is more about a set of expertise and standard practises you accumulate over a long time.So it cannot be easily copied by rivals either,” Zhang said.