China developers return to bond market

Mainland property developers are back into bonds in a major way after a pause in the wake of a default.

Shui On Land is in the market with a two-tranche bond of "benchmark" size, which comes on top of an exercise to exchange US$1.44 billion-equivalent of notes due 2015 for a new batch of securities due in 2018 and 2020.

Country Garden is sounding the market on an offshore offer, expected to be at least US$500 million, and China Chengtong Development is preparing its own deal. China Overseas Land and Investment on Tuesday priced a US$1 billion two-tranche bond. Yanlord priced a S$400 million (HK$2.47 billion) three-year deal on the same day.

It is a remarkable comeback for a market that effectively shut down following the default of Zhejiang Xingrun Real Estate on 3.5 billion yuan (HK$4.4 billion) of domestic bank loans and other debt, in March.

Beijing has had a difficult time with property developers, floating policy after policy to deflate flat prices, occasionally taking the developers to the edge of solvency. The view in the past was that the government would back off to prevent any bankruptcies.

However, after it let one developer go bust, investors became concerned it might let many others follow that path. This came against the backdrop of weak economic data and a clampdown on shadow banking, which previously supplied much of the capital the developers needed.