Buoyed by easing, expected end to Fed rate hikes, China developers issue US$8.6 billion in offshore bonds

Top mainland Chinese property developers are flocking to the offshore bond market to capitalise on a recovery in investors’ appetite. About 14 companies, including big guns Country Garden and Evergrande China, have already issued bonds worth US$8.6 billion this year, more than doubling the amount for January 2018, according to Chinese financial data provider Wind Information.

Country Garden, China’s top developer by sales, issued bonds worth US$1 billion in January, with maturity ranging from three to five years and yields ranging from 7.125 per cent to 8 per cent. Evergrande, China’s third-largest developer by sales, borrowed US$3 billion in offshore bonds to refinance debt on January 22. It issued bonds in three tranches with maturity ranging from one to three years and yields ranging from 6.25 per cent to 8.25 per cent.

China bond defaults tripled in 2018 – the case of one property developer shows why

Investors’ appetite for risk has been boosted by regulators in China, who have made some concessions and eased restrictions, and a widely expected end to interest rate increases by the US Federal Reserve.

Warut Promboon, managing partner at Singapore-based credit research firm Bondcritic, by way of explaining the flurry of issuances, said: “Debt capital market observers and issuers know the situation can change very quickly – 2019 will be an unpredictable year and headline risks can drain appetite fast.

“Yields could rise higher because the default rate is picking up, and that will make timing the issuance of high-yield bonds very unpredictable.”

According to Bondcritic, US$60 billion in offshore and onshore loans borrowed by Chinese property companies is maturing this year.

In the second half of 2018, Beijing tightened curbs on the property sector and this led to a steep sell-off. Prices rose less quickly in big cities such as Beijing, and even fall in cities such as Hangzhou, Xiamen and Tianjin.