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Chinese developers' offshore bond pipeline meets firm new year demand
[HONG KONG] Chinese property developers kicked off the new year with a strong pipeline of bond issuance, in particular for long-tenor notes, taking advantage of easier regulatory approvals and robust market demand.
Analysts said there were signs of a slight loosening in granting quotas to developers with offshore refinancing needs, but cautioned that credit risks remained with property sales expected to be flat this year.
China has tightened both onshore and offshore financing for the sector in a bid to cool speculation, but its slowing economy has forced authorities to tweak some curbs to prevent a sharp slowdown and credit defaults.
Developers including Longfor Group, Yuzhou Properties and KWG Group sold notes between six to 12 years on Monday, according to filings.
At least seven more developers, including top players Country Garden and Sunac China, are planning to sell bonds, filings and rating agencies' notes said.
A senior executive of one of the issuers, who declined to be named because he was not authorised to speak to the media, said it was a good time for those who have bond quotas to tap the market, given the current attractive market pricing.
"If there's quota then finish it first; you don't know the next time you can get a quota again," said the executive, referring to the changing regulatory environment.
"There's no risk to issue a long-tenor bond, but if you're unable to get a quota to raise money, and there's any changes to the environment then you're in trouble."
The high-yield emerging markets, which Chinese property names dominate, achieved returns of 13-15 per cent in 2019, one of the strongest on record, according to credit researcher Lucror Analytics, driven by a change in the US Fed's stance on rates that had spurred large credit fund inflows.
Yuzhou Properties, headquartered in Shanghai, was one of the active issuers last year. The coupon of its notes due 2026 sold on Monday is 7.375 per cent, compared with 8.3 per cent for 2025 notes issued in November. The developer sold US$645 million this time, compared to US$500 million in November.
CLSA head of China research Alvin Wong forecasts the bond market will perform well in the next two months due to yield compression, and expects more issuers will come to the market before liquidity tightens.
"This is positive for the big developers; they sold well last year and didn't buy as much land, and this will further help their cashflow," Wong said.
Bond issuance by Chinese property developers totalled US$46.23 billion last year, Refinitiv data show, double the 2018 issuance.
Rating agency Moody's in a November report, however, said it expected 2020 issuance to slow as most developers had depleted their quotas.
It cautioned credit risks in the sector are mounting as sales growth slows and funding conditions remain tight.