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Some Chinese property developers turning to short-term debt as virus hits cashflow
[HONG KONG] Some Chinese property developers are turning to short-term debt for funds as home sales stall due to a spreading coronavirus outbreak, sharply reducing their cash flow.
The switch is in stark contrast to last month, when many developers were able to sell long-tenor notes with maturities of up to 12 years.
Guangzhou-based China Aoyuan Group sold US$188 million of 363-day notes on Monday.
At least four other developers have borrowed debt offshore maturing in less than one year since the Lunar New Year, including Central China Real Estate, whose projects are in Henan province, which borders Hubei province, the epicentre of the outbreak.
While notes of less than one year are cheap at the moment and do not require regulatory approval, they expose issuers to higher refinancing risks if markets turn volatile.
"Companies who need to issue these short-term notes are usually in cash crunch, otherwise longer tenors are preferred because then the company will not need to worry about refinancing so soon," said a chief finance officer of a Shanghai-based developer.
He declined to be identified because he was not authorized to speak to the media.
Aoyuan said in the prospect that it plans to use the proceeds for offshore debt refinancing and general working capital. Central China, which sold US$300 million of 364-day notes earlier this month, said it would use the proceeds to refinance existing debt.
China's property market, a major economic growth driver, has effectively frozen up as the virus outbreak keeps property showrooms shut and potential buyers are afraid or unable to leave their homes.
But developers expected sales to return to normal soon in less affected cities as more businesses reopen and people are allowed to return to work. They also shrug off any material impact on their earnings for this year because the first quarter has been a traditionally low season.
China Evergrande said on Sunday that nearly 50,000 properties had been sold since the company made a push on online sales three days ago with free refund and a lowest price guarantee.
Developers said looser monetary policy has also helped relax conditions for loans and corporate bonds, and a curb on land purchase restrictions in some cities is also stimulating the industry. But some say will remain cautious in building landbanks this year.
Rating agency Moody's said last week most rated developers have adequate buffers to absorb the impact of the coronavirus, though small and financially weak firms will face higher refinancing risks in the onshore and offshore bond markets because of their weaker access to funding.