Mainland property developers are turning to commercial mortgage-backed securities and looking at other alternative financing as creditors grow more discriminating in the face of rising concerns about the domestic real estate and debt markets.
Bond buyers are shying away from second-tier developers because property sales have cooled as the economy slows. The expected bankruptcy of a local developer and the country's first domestic bond default this month have heightened scrutiny of borrowers.
The property companies have a renewed sense of urgency to raise capital after US Federal Reserve chairwoman Janet Yellen indicated the central bank, which sets the tone globally for borrowing costs, may raise interest rates as early as spring next year, sooner than many investors had anticipated. Higher interest rates would mean higher borrowing costs, both for the companies and for their homebuying customers.
Highlighting the search for alternative funding avenues, property fund MWREF earlier this month issued the first cross-border offering of commercial mortgage-backed securities since 2006. The offer was priced at a yield lower than two dollar bonds issued last week, IFR said.
"The market will see more of these products," said Kim Eng Securities analyst Philip Tse in Hong Kong. "It's getting harder to borrow with liquidity so tight in the bond market. It's getting harder for smaller companies to issue high-yield bonds."
The notes, issued through a MWREF subsidiary, Dynasty Property Investment, were ultimately backed by rental income from nine MWREF shopping centres in China and were structured to give offshore investors higher creditor status than is normally the case with foreign investors.
MWREF is managed by Australian investment bank Macquarie Group, which declined to comment.
The head of investor relations for Beijing Capital Land, which is mainly focused on middle- to high-end residential development and high-end commercial property, said the company would look at new ways to fund its business.