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Cash-hungry China property developers face new norm: double-digit bond yields

Hong Kong

CHINESE property developer Times China Holdings sold a three-year bond in January at a yield of 6.25 per cent. Now, it is having to offer a yield of 11 per cent on a two-year bond, underscoring the drastically higher cost of financing for Chinese developers, which are being squeezed by rising US interest rates, growing investor aversion to risk taking and China's cooling property market.

Heavily indebted developer Evergrande Group, which earlier this month sold a jumbo US$1.8 billion of bonds with coupons among the highest in the market, late on Monday sold an additional US$1 billion of two-year bonds at 11 per cent.

At the time of the US$1.8 billion sale, bankers and analysts warned that the high coupons offered by Evergrande would pile pressure on rival developers and push up borrowing costs all around.

That is now playing out as developers rush to market - offering ever-higher coupons to attract investors - before their offshore borrowing quotas expire at the end of the year.

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Developer Agile Group sold a three-year bond in July at a yield of 8.5 per cent, but last week paid 9.5 per cent for US$400 million in two-year bonds, rated "BB" by S&P.

Greenland Holdings also tapped the market this week, selling a 1.5-year US$200 million bond at a yield of 9.25 per cent on Monday, according to a term sheet seen by Reuters. That compares with a one-year bond that it sold in June with a yield of 7.875 per cent.

Only 15 companies across the Asia-Pacific have paid double-digit rates for bonds of at least US$100 million with similar tenors in the past two years, according to Refinitiv data. Twelve of those are Chinese property developers.

"If you've got 25 people in a room wearing purple you'd feel a bit less embarrassed about wearing purple," said a senior debt capital markets banker about the high yields. REUTERS

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