Chinese developers sinking into disguised debts
A rising issuance of perpetual bonds by mainland property firms is creating a greater level of indebtedness than interim results indicate
Chinese developers' indebtedness is worse than shown in their interim results as a rising number of issued perpetual bonds, and limited disclosure on their terms, are adding to investors' concerns about their financial health at a time when the sector is struggling with an industry downturn.
When Evergrande, one of the mainland's top 10 developers, announced the issuance of such securities last year, it did not attract much attention.
But as the market downturn kicked in and more developers, including Greentown, Fantasia and Kaisa, issued such bonds this year, investors wanted to know more but got worried when they failed to find full disclosure by issuers, particularly about interest rates and redemption terms.
Although all developers put perpetual securities as equity in their interim reports, Moody's has taken the opposite tack.
"They have debt-like features," said Franco Leung, the global ratings agency's senior property analyst. "Developers will redeem them at some point."
Until the end of June, Evergrande had the highest amount of perpetual securities among all developers at 44.5 billion yuan (HK$55.9 billion), followed by Guangzhou R&F at 15.6 billion yuan, Agile at 4.5 billion yuan, Greentown China at three billion yuan, Kaisa at one billion yuan and Fantasia at 700 million yuan.