Risks loom for developers after bond sale rush
Possible yuan fluctuations spark concern as mainland property firms raise funds offshore
Mainland developers have enjoyed a bumper year in their offshore fundraisings so far this year, but they face hidden currency risks when the debts mature in the next three to five years, financial experts warned.
Raising funds in the domestic market has been difficult since the mainland started the property tightening campaign four years ago.
Beijing has virtually closed the onshore stock market for developers since 2010, while banks have cut their lending to the sector since September as home prices surged out of the comfort zone of the authorities, triggering fresh cooling measures.
"Developers go offshore mainly because of domestic refinancing constraints," said Yin Zhongli, a senior researcher at the Chinese Academy of Social Sciences.
Appreciation in the past 10 years does not mean the yuan will continue to rise
Developers including Evergrande, Greenland Hong Kong and China Overseas Land & Investment issued a total of US$5.5 billion and HK$1.78 billion in bonds in the past two months, with tenures mostly falling in the range of three to five years. They have issued bonds in Hong Kong worth US$18 billion in the first 10 months of the year, exceeding the US$8 billion in each of the past two years.
Coupon rates vary from below 2 per cent to above 10 per cent, depending on the creditworthiness of issuers. They are much lower than onshore lending rates of 15 to 20 per cent from shadow banking sources such as private equity funds, trust funds and wealth management funds.