Chinese developers under pressure as key funding source dries up
Banks, by far the largest funding source in China’s US$11 trillion bond market, are now shying away from higher-risk, higher-yielding notes
Chinese property developers are facing a potential cash crisis as they find themselves unable to access a key source of financing amid Beijing’s crackdown on debt, according to analysts.
The country’s builders have long relied on the bond market to fund their operations and refinance existing loans, tapping a seeming bottomless pit of funds that predominantly came from banks more than willing to soak up the debt.
But that river of easy credit is quickly drying up, according to investors, securities firms and credit rating officers.
Banks, by far the largest funding source in China’s US$11 trillion bond market, are now shying away from higher-risk, higher-yielding notes, under pressure from Beijing as it tries to ward off financial risks by reducing the nation’s worryingly high debt levels.
Two sources from different institutions said commercial banks’ proprietary trading departments have been staying away from bonds rated below AA+, and have become very wary of investing in property firms and local government financing vehicles.
Most large Chinese builders are rated AAA by domestic ratings agencies, according to Bloomberg, but none are rated A or above by the international agencies Fitch, S&P and Moody’s.