Door opens for China property developer bonds onshore

[HONG KONG] Chinese property developers have been ramping up onshore bond issues in the past two weeks in a sign that an unofficial freeze on domestic offerings from the sector is coming to an end.

Developers launched at least seven domestic bonds in the past two weeks, a pace unseen since regulators tightened scrutiny of this market segment in September 2016 against the backdrop of surging house prices.

Onshore issues picked up as the offshore US dollar bond market turned unfavourable towards Chinese developers, following heavy supply in the last week of February.

Greentown Group highlights the change of mood on March 9, when it finally printed 2 billion yuan (S$417.8 million) of five-year non-put three notes on the Shanghai Stock Exchange, some 16 months after initially submitting the plan to the bourse. It only received approval in January.

The company, an onshore subsidiary of Hong Kong-listed Greentown China Holdings, quickly raised another 2 billion yuan last week from two offerings of 365-day notes in the interbank bond market.

In addition, China Resources Land, Shanghai Shimao , Gemdale and Overseas Chinese Town, raised a total 13.7 billion yuan in the past two weeks from onshore notes. The four and Greentown all have AAA ratings from the domestic credit agencies. PRICING DIFFERENCES Market participants said sound liquidity conditions during the two-week National People's Congress sessions, which began on March 5, and a partial regulatory relaxation over developers' financing activities provided the groundwork for the flurry of deals from developers.

"Many issuers in the property sector are looking to roll out deals to capture the current benign market conditions," said a Beijing-based credit analyst at a big Chinese securities house.

He noted that onshore liquidity improved during the NPC sessions as there were no negative headlines and investors were also building positions before the end of the quarter.

Nevertheless, investors were unwilling to go down the credit curve to look at developers without a domestic Triple A rating, he said.

Another Shanghai-based DCM banker said that China Resources Land's 6 billion yuan bond offering on March 8 demonstrated the depth of the market and caught the eye of many other developers.

CR Land's offering was the largest single trade for corporate issuers in the Panda bond market.

However, pricing varied greatly for the five issuers. Central state-owned company CR Land offered the lowest coupon of 5.38 per cent for three-year notes, while Shanghai Shimao paid the highest of 6.33 per cent for 700 million yuan three-year notes.

"Chinese investors have their own understandings of credits and, if issuers can get in some orders on their own, it often makes big difference on pricing," said the analyst. BREATH OF LIFE Meanwhile, developers are lining up special housing rental bonds in the exchange-traded market. This is a new instrument with proceeds pledged mainly to support building rental housing projects. The government is encouraging the construction of rental housing to ease upward pressure on property prices and accommodate migrant workers and young couples.

A Beijing-based DCM banker said the special bonds had caught on with developers, which could get fast-track approval from the two bourses.

Some developers, who withdrew issues stuck in regulatory limbo for more than a year, were dusting them off and simply changing the use of proceeds to rental housing projects, in the hope that regulators would give them the green light this time, he said.

So far, at least five developers have applied to the SSE to issue rental housing bonds, according to preliminary filings. The list includes Greentown's 4 billion yuan scheme and Bermuda-incorporated Hopson Development Holdings' 10 billion yuan plan.

Longfor Chongqing Enterprise Development is set to issue the first batch of rental housing bonds this week on the SSE.

The company, an onshore subsidiary of Hong Kong-listed Longfor Properties, intends to raise up to 3 billion yuan from a dual-tranche offering to fund seven projects.

The base issue size is 1.5 billion yuan with an overallotment option of 1.5 billion yuan. Books will open on March 20 for the five-year non-call three notes and seven-year non-call five notes.

Citic Securities is lead underwriter on the offering with China Securities as joint lead underwriter.

Still, bankers caution that the present momentum is not a prelude to a deluge of supply from developers, as low-rated names still struggle to win over regulators and investors.

"Developers will not have as happy a time as they did back in 2015 in terms of bond financing, but they have been given a breath of life," said the DCM banker.

REUTERS