Buoyed by easing, expected end to Fed rate hikes, China developers issue US$8.6 billion in offshore bonds
- Country Garden, China’s top developer by sales, issued bonds worth US$1 billion this month
- 2019 will be an unpredictable year and headline risks can drain appetite fast, says analyst
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.
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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.
This month, China’s central government freed up more money for lending available with banks, and while this was not aimed at the property sector, it is expected to help developers. Elsewhere, some cities have taken steps to lift price caps and remove resale restrictions.
Analyst said these easing measures as well as the attractive yields on offer have successfully wooed investors. “Investors who held back last year are active now. They are selectively buying champion developers’ short-term bonds,” said Angus Hui, fund manager, Asian fixed income, at multinational asset management company Schroders.
Defaults at China’s highly leveraged companies, however, continue to be a concern. Their number surged to 119 in 2018 from 35 the previous year, according to Wind Information.
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Yinyi, a developer in the Chinese port city of Ningbo, is the latest property company to default on its bonds. It said in December 2018 it could not pay 300 million yuan due against bonds issued three years ago because of short-term liquidity problems.
The lack of confidence in Chinese developers was highlighted by a recent sell-off in Hong Kong. On January 18, shares in Jiayuan international, a Hong Kong-listed unit of the Zhejiang-based developer, plunged by 80.6 per cent to HK$2.52, wiping about HK$26 billion of its market capitalisation, amid concerns that US$350 million in debt maturing on the day would not be met.
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The developer later said the bond had been repaid in full. Its shares have rebounded to HK$3.7, but are still more than 70 per cent lower than before their steep decline on January 18.
