Embattled China developers rush to raise US$2b in a day

Beijing

THE scramble for cash by Chinese property companies is intensifying as the industry looks for ways to alleviate a historic liquidity squeeze.

Firms announced plans to raise US$2.4 billion in just the past 24 hours, taking the total over the last week to at least US$4.2 billion, Bloomberg calculations showed.

The latest fundraising includes China Evergrande Group's stake divestment in HengTen Networks Group and Country Garden Services Holdings' second share placement in 6 months, as well as onshore bond sales by 2 state-run developers.

Property firms are stepping up efforts to raise cash as they seek to repay debt at a time when strict rules on leverage, elevated borrowing costs and a slowdown in homes sales are curbing traditional sources of funds.

Chinese policy makers have made it clear they expect developers to meet their obligations, even as officials maintain curbs on the sector.

"Many developers are doing everything they can to avert default," said Abhishek Rawat, portfolio manager at Hong Kong Asset Management, who turned more positive on the sector last month.

"That's a good sign as it implies they care about their reputation. It shows their willingness to pay."

The rash of deals comes as developers face a wall of maturing dollar and local bonds at the beginning of 2022. The builders have a total of US$13.4 billion of dollar bonds and the equivalent of US$12.6 billion in yuan notes coming due in the first quarter, data compiled by Bloomberg showed.

The average cost of refinancing such debt via dollar bond issuance remains prohibitively expensive with yields around 20 per cent.

Chinese authorities, who have long put a premium on financial stability, told real estate firms at a meeting on Oct 26 that they need to meet all their debt obligations. No developer has defaulted on dollar debt since, after at least 4 failed to repay offshore obligations earlier that month.

But despite the panic among bondholders, authorities have been reluctant to provide financial assistance. That is because of Beijing's determination to reduce moral hazard in markets, punishing creditors who in the past ignored risks or assumed overextended companies would always be bailed out.

"It is clear that central government does not want to get involve in rescuing developers," said Steven Leung, executive director at UOB Kay Hian (Hong Kong).

The following are details of the deals announced in the past day: Evergrande on Thursday (Nov 18) said it agreed to sell its entire 18 per cent stake in Internet services firm HengTen for US$273 million, the latest asset disposal by the debt-stricken property giant. The sale represents a discount of about 24 per cent to HengTen's close on Wednesday. Evergrande said it expects to incur a loss of about US$1.1 billion from the sale.

Country Garden Services is looking to raise HK$8 billion (S$1.4 billion) selling new shares at HK$53.35 each, a 9.5 per cent discount to Wednesday's closing price, showed the terms of the deal obtained by Bloomberg News. The funds will be used for future acquisition opportunities, new business development and general corporate purposes, the terms showed.

Agile Group Holdings will raise US$311 million through the sale of bonds exchangeable into shares of A-Living Smart City Services , it said on Thursday.

Poly Developments and Holdings Group sold 2 billion yuan (S$426 million) of 5-year bonds at 3.55 per cent, showed a statement on Chinamoney.com.cn.

Merchants Shekou Industrial Zone Holdings sold 3 billion yuan of 270-day bonds at 2.84 per cent, China Foreign Exchange Trade System said in statement on Wednesday.

Last week Sunac China Holdings raised about US$953 million through the sale of new shares, as well as a stake in its property management unit. Sun Hongbin, the controlling shareholder of Sunac and the chairman of the board, also provided US$450 million of his own funds in the form of an interest-free loan.

Despite encouragement from Beijing, fundraising efforts can be challenging in jittery markets. State-run Bright Real Estate Group on Thursday postponed a 580 million yuan bond sale to Friday, less than an hour after it said it had pulled the deal due to market volatility.

"China property onshore issuance has resumed, but don't get too excited yet," wrote Bank of America analysts in a Wednesday note. BLOOMBERG