MNI EXCLUSIVE: China Developers To Benefit But No USD Backing

By Archie Zhang

     BEIJING (MNI) - China's property developers will benefit from increased

liquidity levels and an easing of regulations this year, facilitating the

servicing of their yuan-denominated debt, but Beijing is unlikely to step in to

help if any run into trouble with dollar bonds, government advisors told MNI.

     National-level regulation in the sector, together with financing

conditions, remain tight, according to Dong Ximiao, a special analyst with the

National Institute of Finance and Development. The central bank recently

repeated its mantra that "houses are for living not for speculation."

     However, there has been easing at a local level. In Shenzhen, for example,

where house prices are a lead indicator for the China market, developers are now

allowed a partial rebate on government fees for selling properties before

construction is completed.

     "The general direction for house market policy is towards relaxing this

year. It will be primarily focusing on the developer, policy relaxing for the

home buyer side usually follows later," said Yan Jinyue, chief analyst with

E-House Real Estate Research Institute.

     Both Yan and Dong think developers will find it easier to service yuan

debt, helped by abundant liquidity in the financial system.

     But property developers have also in recent years been amongst the most

active sellers of dollar-denominated bonds outside mainland China, accounting

for more than 20% of the outstanding USD800 billion of corporate bonds issued by

Chinese companies by the end of 2019, according to Tensant Securities.

     The blue-chip developers who issued most of these bonds suffered "terrible"

property sale revenues in January and February, although numbers may recover in

Q2 if Beijing moves to boost demand, Yan noted.

     --HEADWINDS

     More than 440 real estate developers filed for bankruptcy in 2019, the

highest in history, according to the website of The Supreme People's Court of

China. And others have faced headwinds.

     Yihe Real Estate, once among China's Top 60 developers, ran into financial

difficulties last year as it was found defaulting on more than CNY5 billion in

undisclosed debts, equivalent to 27% of the company's total capital, Wind

Information shows.

     The biggest developer in China, Evergrande had to pay an interest rate of

12% when it sold USD 1 billion of four-year bonds in January, even as it tried

offload properties by offering discounts as high as 25%.

     Some USD43.8 billion of bonds sold by Chinese developers will mature in

2020, according to data provided by Citic Securities in January.

     "As long as those companies have sustainable finance and they have money to

purchase foreign currencies, they shouldn't have a problem in servicing the

payments. Meanwhile, the central government has said it would step up the

counter-cyclical adjustment and keep liquidity reasonably ample," said Guan Tao,

a former official with the State Administration of Foreign Exchange and now a

professor at Wuhan University.

     But he added: "I think the central government won't tap its USD3 trillion

in foreign reserves to bail out the bonds of those companies."

     He also noted that the yuan should be supported as the economy recovers

from the virus outbreak and global central banks cut rates, which should make it

easier for companies to service USD-denominated liabilities.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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