China Throws Lifeline to Builders Facing Record Wall of Debt
(Bloomberg) -- Chinese developers facing a looming wall of debt repayments have been thrown a lifeline by regulators easing access to offshore financing. That won’t solve all their problems.
The nation reported the deepest slowdown in new home sales in almost three years on Tuesday, as local authorities have rolled out curbs to cool runaway prices and President Xi Jinping urges citizens to end their speculation on housing.
Amid the slowdown, developers still face restrictions on borrowing in the local bond market, rising costs for domestic financing -- including shadow loans -- and a record $30 billion in onshore and offshore bonds coming due in 2018. That figure balloons to $71 billion if put options are exercised, according to Bloomberg-compiled data.
“Cooling measures will slow down sales and cash receipts,” said Clement Chong, senior credit analyst in Singapore at NN Investment Partners. “The government is unlikely to loosen these restrictions in the near term.”
Home sales, excluding affordable housing, fell 3.4 percent in value in October from a year earlier, according to data released Tuesday.
So far this year, offshore bond sales almost tripled while local offerings -- dominant in 2016 -- shrank over 60 percent. That trend looks set to continue, with the National Development and Reform Commission more willing to approve larger quotas for offshore bond deals than earlier in the year, people familiar with the matter said Tuesday. At least eight builders received quotas or had indications from the NDRC that approval is imminent, they said.
Beijing-based Xinyuan Real Estate Co. is marketing a three-year dollar bond on Wednesday with initial price guidance of 9.125 percent area, according to people familiar with the matter, who are not authorized to speak publicly and asked not to be identified, after China South City Holdings Ltd. and Guangzhou R&F Properties Co. priced dollar bonds this week.
With the Shanghai Stock Exchange keeping the threshold high for property firms to sell bonds since October 2016, more builders have turned to shadow financing. For one type, trust financing, interest rates have climbed to 9-10 percent from as low as 6 percent last year, according to Christopher Yip, a real estate analyst at S&P Global Ratings.
For developers that managed to tap the domestic bond market, the average coupon has climbed to 5.6 percent this quarter, 1.6 percentage points higher than the level in the first three months of 2017, Bloomberg-compiled data show.
“The higher funding costs will impact debt serviceability which will ultimately impact their bottom line,” said Yip. “Onshore bank loans are getting more pricey and domestic bonds are largely off limits for builders.”
To be sure, Chinese developers have a sizable cash buffer to counter any short-term liquidity squeeze, helped by years of strong sales, according to Pang Ling, a Shanghai-based property analyst at China Real Estate Information Corp. Listed developers had combined cash and equivalents of 1.46 trillion yuan ($220 billion) at the end of June, almost triple the tally three years earlier, Bloomberg-compiled data show.
Yet the picture may not be as rosy for small developers as for bigger firms.
“Smaller developers who have weaker access to funding will face trouble,” Chong at NN Partners said. “Some of them will exit the industry.”
©2017 Bloomberg L.P.