These Charts Show How Much China’s Home Builders Are Struggling
These Charts Show How Much China’s Home Builders Are Struggling
(Bloomberg) --
Beijing’s developer-financing curbs couldn’t have come at a worse time.
China’s three biggest home builders -- Country Garden Holdings Co., China Evergrande Group and China Vanke Co. -- have almost $80 billion in short-term debt, which includes bonds and construction loans, falling due by June 2020, Bloomberg calculations based on their end-June filings show. Funding pressure at smaller publicly listed firms in China, which collectively owe around $146 billion, can be even more intense because they have fewer projects to sell.
It makes relying on cash flows to pay obligations even more important. But housing demand has been stymied by government curbs -- home-price growth slowed for a third month in August as an array of measures imposed since January helped take the heat out of the real estate market.
While the largest developers may in fact benefit from the fundraising curbs (as banks limit advances the strongest get the spoils), those at the smaller end could face consolidation, Nomura Holdings Inc. property analyst Leif Chang said. Consolidation could also be a boon for top players, boosting their market share, he said.
Country Garden, Evergrande and Vanke didn’t immediately respond to requests for comment.
Here’s a series of charts and tables that illustrate the problem.
Narrowing Channels
The three most important funding avenues for developers are narrowing. Bank loans to home builders expanded at the slowest pace since 2017 in the second quarter while trust and bond lending is also decelerating.
Fewer Home Sales
At the same time, the amount of money developers are getting from selling new projects is waning.
China’s government, meanwhile, has introduced a slew of measures aimed at further limiting developers’ ability to get financing. Rules on overseas debt sales were tightened in July, while trusts, an important shadow banking channel, have also been told to rein in property lending.
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The moves are starting to anger some real estate firms.
Sun Hongbin, the chairman of China’s fourth-largest developer Sunac China Holdings Ltd., last month called the situation “unprecedented” and said his company had just about halted land buying due to the clampdown.
Evidence of the pressure can be found in the dollar bond market, where investors have already started to slash their holdings of riskier high-yield debt due to repayment concerns. Of the 25 stressed borrowers that have bonds coming due in 2020 and have yields of at least 15%, 10 are Chinese developers, Bloomberg data show.
High Exposure
It’s not hard to see why Beijing is concerned. Even after three years of property curbs, and despite the intensification of those in January, financial institutions in China are still hugely exposed to the sector.
It’s too much for the country’s some $40 trillion financial system to handle and could be dangerous in the event of a sharp economic slowdown, Guo Shuqing, the head of China’s banking regulator, has warned.
To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net;Molly Dai in Singapore at bdai13@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe
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With assistance from Bloomberg