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by Nisha Gopalan | Bloomberg July 2 at 21:47
Funding opportunities for Chinese developers are stifled, but do not worry too much about the fate of these companies. Beijing's regulations will change soon and faucets will reopen.
The sale of yuan bonds became much more difficult last year as the government acted to cool the housing market. Many real estate companies have turned to short-term securities, which do not require the approval of the National Development and Reform Commission
Authorities may consider slowing approvals for offshore bonds, said people at running last week. The NDRC, which denied that this is the case, however limits the use by the promoters of the proceeds of foreign bonds to refinance maturing debt rather than investing in additional real estate projects.
This could weaken the ability of businesses to raise new funds. Slow sales, according to Moody's Investors Service
The prospect of even tougher restrictions weighed on real estate stocks, with an index of the stocks of 22 Chinese developers plummeting 7.4% last week, the worst weekly performance since February, and another 4.3% Tuesday morning. The 7.55% $ 750 million Country Garden Holdings Co. bonds, maturing in 2021, are trading at their lowest level in three years.
This is understandable. These companies are highly indebted, with a net debt of more than 250% in some cases.
Fundraising through stock sales is not easy either. China Evergrande Group is still waiting for approval for a listing on the mainland, while Dalian Wanda Group Co. has a few months before its real estate branch has to start in China or compensate investors who have contributed to the write-off of the company. Unit in Hong Kong
as Sunac China Holdings Ltd., will feel pain. But I'm willing to bet that there is no major flaw. Too much of the Chinese economy is immobilized in real estate: it accounts for about 20% of the country's gross domestic product.
Subscribers in this sector will remember Kaisa Group Holdings Ltd., which in 2015 became the first Chinese default developer. on dollar bonds after a regulatory investigation in his hometown of Shenzhen. It has managed to access the offshore market since, and its stock traded in Hong Kong has more than doubled since the halt of trading last March.
More recently, Shanghai-based Greenland Holdings Corp. revealed that its units had late loans and $ 813 million in orders for a $ 250 million sale of floating rate notes.
So do not worry about Beijing going too far. Chances are, the onshore issue rules will be relaxed again before long. The rise in real estate prices is slowing and the strength of the yuan means that the offshore road is becoming more expensive.
There is also always Hong Kong as an alternative way of financing. Kaisa proposed last month a split and a separate listing of its subsidiary Kaisa Property, for example. Syndicated loans are another option, too
If anything, this real estate bust could be a potential buying opportunity.
To contact the author of this story: Nisha Gopalan at [email protected]
editor responsible for this story: Katrina Nicholas at [email protected]
© 2018 Bloomberg LP
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