China property rebound sparks demand for bonds

Shanghai

A REBOUND in China's property market has spurred onshore investor demand for bonds issued by developers, helping cut their borrowing costs.

Longfor Properties Co sold five-year AAA-rated notes to yield 3.93 per cent on Monday, compared with the average 4.09 per cent rate on securities with similar maturities and credit scores in the secondary market. Beijing Tian Heng Development Group issued AA-rated five-year debt at 4.12 per cent on July 22, less than the 5.22 per cent on comparable debentures.

"Investors are changing their perceptions about property companies," said Zhang Li, a bond analyst in Beijing at Guotai Junan Securities Co. "They've come to realise property developers' credit profiles are improving."

Chinese bond investors' increasing bullishness on property debt mirrors a similar shift in equities, with the Shanghai property stock index surging 19 per cent since July 8, topping a 14 per cent rally in the broader gauge.

Home sales jumped 13 per cent in the first half, compared with a 9 per cent decrease a year earlier, after authorities reduced interest rates and eased property curbs.

Tianjin Tianbao Infrastructure Co sold five-year AA+ bonds at 4.5 per cent on July 21, compared with a 4.77 per cent secondary-market average yield.

Chinese developers have stepped up onshore bond sales after authorities allowed more of them to tap the domestic market. Builders issued a record 67.1 billion yuan (S$14.9 billion) of notes in the second quarter, up from 44.4 billion yuan the previous three months.

China loosened mortgage policies and down payment requirements for some homebuyers at the end of March, adding to easing measures since September to aid an industry that's been weighing on economic growth. BLOOMBERG