Free Trial

REPEAT: MNI: China Prop Developers Look To Offshore Bond MKt

Repeats Story Initially Transmitted at 08:48 GMT Jan 5/03:48 EST Jan 5
--As Onshore Liquidity Tightens, Offshore Funding Beckons 
     BEIJING (MNI) - Chinese property developers are expected to dive deeper
into the offshore bond market this year amid greater financing and refinancing
pressures and as the government continues to implement stricter regulations on
onshore property market financing in an effort to rein in housing price growth.
     Chinese developers issued $38.86 billion worth of bonds in the offshore
market last year, almost triple the $14.06 billion of 2016, and quadruple the
$9.6 billion in 2015, according to Wind Information. Offshore bond issuances by
property developers last year comprised 12.38% of the total amount of U.S.
dollar-denominated bonds issued offshore by all Chinese companies, including
financial institutions, according to data from Golden Credit Rating
International Co., a ratings agency based in Beijing. 
     The increased issuance came amid the Chinese government's campaign since
late 2016 to rein in skyrocketing housing prices and curb a possible property
bubble. The government's measures -- housing purchase quotas on families and
individuals, higher mortgage rates, and limits on housing purchases by
non-residents -- have significantly weighed on housing sales, the main source of
property developers' incomes.
     To maintain adequate levels of liquidity, property developers are likely to
increase further this year their offshore bond issuance because property sales
growth is expected to continue to slow and could even turn negative, Zhao Yang,
chief China economist of Nomura, a Japanese investment bank, said in an
interview with MNI.
     --FUNDING COSTS RISING
     But yields on bonds issued by Chinese property companies in the offshore
market are also expected to continue their upward march this year -- in step
with U.S. interest rate hikes -- after an increase to a range of 3.6% to 11%
last year from 2.5% to 9.75% in 2016, Zhu Lin, senior property analyst at Golden
Credit, told MNI. This will make property developers' financing costs even
higher, adding to their burden. 
     In line with the government's financial deleveraging campaign, the National
Development and Reform Commission, which approves bond issuances, stopped
granting new quotas for offshore dollar bond issuances in the second quarter of
2017, but then lifted the curb in June for property developers.  
     The rise of onshore financing costs due to tightened liquidity amid the
deleveraging campaign, the need by developers to pay for increasingly expensive
land acquisitions as the industry undergoes consolidation, and the need to
refinance past borrowing have forced property developers to turn increasingly to
the offshore market for funds.
     --REFINANCING NEEDS TO REMAIN ELEVATED
     "Refinancing needs in the short term will remain at a high level as Chinese
developers' investments should still be large this year and next given their
record-high land acquisitions last year," Zhu said.
     Kaven Tsang, a Moody's vice president and senior credit officer with a
focus on the Chinese property sector, said in an interview with MNI that 55
property companies rated by the agency face heightened refinancing pressure,
which is expected to motivate some to use offshore funding channels to refinance
maturing or puttable onshore bonds.
     Chinese developers rapidly increased their onshore bond issues -- mostly
with three-year maturities -- in 2015 and 2016, while their offshore bond issues
-- mostly with five-year terms -- also rose significantly in 2013 and 2014,
according to Tsang. This means that many of these bonds will come to maturity
this year. 
     Data from Dealogic, however, shows that refinancing pressures will be even
higher for Chinese developers next year and in 2020. Around 73 offshore bonds
with a value of $22.56 billion are due next year, compared with 61 offshore
bonds worth $17.52 billion maturing this year. In 2020, $19.89 billion worth of
bonds are expected to mature, the data show.
     But Rachel Shao, regional research manager for Dealogic, told MNI she was
not sure property developers' offshore issues would increase much this year,
given that offshore issuance slowed down in each subsequent quarter last year --
from $10.1 billion in the first quarter to $9.3 billion in the second, $8.7
billion in the third and $8.0 billion in the fourth. While last year's trend may
be due to seasonal reasons or front-loading of financing at the beginning of the
year, a continuation could mean lower offshore issuance this year. 
--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
}); window.REBELMOUSE_ACTIVE_TASKS_QUEUE.push(function(){ window.dataLayer.push({ 'event' : 'logedout', 'loggedOut' : 'loggedOut' }); });