China’s developers to face a major debt refinancing scramble in 2018, rating agencies say
China is set to experience a wave of maturing debt in 2018 as Chinese property developers set about a major refinancing cycle expected to last two years, according to credit rating agencies.
Real estate companies will need to roll over US$10 billion of offshore bonds and US$35 billion in onshore bonds in 2018, with a large portion of the maturities coming due in the second half of the year, S&P Global Ratings said.
Moody’s said 75 per cent of its rated Chinese developers have bonds maturing in 2018.
“The refinancing risk will escalate in 2018, 2019 and 2020,” said Cindy Huang, director of corporate ratings at S&P Global Ratings. “Onshore bond refinancing will face particular pressure.”
Huang said a huge number of domestic corporate bonds with maturities of three years had been sold by Chinese developers during 2014 to 2016 after the government reopened the onshore bond market to the sector.
Since the fourth quarter of last year, Chinese regulators have imposed restrictions on bond raising applications by property companies in a bid to cool off the overheated property market.
“A number of developers will encounter financial problems if they can’t issue onshore bonds next year,” Huang said. “They may seek high-risk, short-term trust loans for refinancing.”
Still, the rating agency forecasts most developers will be able to repay existing debt, as they have recorded strong property sales in the past 1 to 2 years and hold abundant cash.
The median of rated developers’ cash to short-term debt coverage dropped to 1.6 times from 2 times at the end of 2016, as the peak of maturities drew closer, but it’s still a relatively healthy level, Huang said.
China will probably ease onshore bond issuance curbs for property firms in the near future to avoid risks to the financial system, she added.
While Moody’s agrees the overall risk is manageable, the rating agency said it was concerned about developers with low credit ratings.
Since late June, Chinese regulators have approved onshore and offshore bond issuance “mainly for investment-grade and Ba-rated developers”, Moody’s analysts said.
The rating agency added that it wasn’t clear whether low-rated developers would be granted access to onshore and offshore bond markets in 2018.
Five developers account for nearly half of 2018 maturities and put options, according to Moody’s. These include China Evergrande Group, Guangzhou R&F Properties, Greenland Holding, Country Garden, and Dalian Wanda Commercial Properties.
China Evergrande, the country’s largest developer, has US$5.5 billion in onshore bonds maturing in 2018. The real estate developer has ample cash to repay the debts, Moody’s said.
However, the outlook for Guangzhou R&F is less certain, as the developer has US$3.9 billion of bonds due in 2018, representing 57 per cent of its cash holdings. Moody’s has assigned a “negative” outlook rating on the company, noting that the debt repayment would “erode the company’s balance-sheet liquidity”.