Chinese developers facing a looming wall of debt repayments have been thrown a lifeline by regulators easing access to offshore financing. That won’t solve all their problems.
The nation reported the deepest slowdown in new home sales in almost three years on Tuesday, as local authorities have rolled out curbs to cool runaway prices and President Xi Jinping urges citizens to end their speculation on housing.
Amid the slowdown, developers still face restrictions on borrowing in the local bond market, rising costs for domestic financing – including shadow loans – and a record USD30 billion in onshore and offshore bonds coming due in 2018. That figure balloons to $71 billion if put options are exercised, according to Bloomberg-compiled data.
“Cooling measures will slow down sales and cash receipts,” said Clement Chong, senior credit analyst in Singapore at NN Investment Partners. “The government is unlikely to loosen these restrictions in the near term.”
Home sales, excluding affordable housing, fell 3.4 percent in value in October from a year earlier, according to data released Tuesday.
So far this year, offshore bond sales almost tripled while local offerings – dominant in 2016 – shrank over 60 percent. That trend looks set to continue, with the National Development and Reform Commission more willing to approve larger quotas for offshore bond deals than earlier in the year, people familiar with the matter said Tuesday. At least eight builders received quotas or had indications from the NDRC that approval is imminent, they said.
With the Shanghai Stock Exchange keeping the threshold high for property firms to sell bonds since October 2016, more builders have turned to shadow financing. For one type, trust financing, interest rates have climbed to 9-10 percent from as low as 6 percent last year, according to Christopher Yip, a real estate analyst at S&P Global Ratings.
For developers that managed to tap the domestic bond market, the average coupon has climbed to 5.6 percent this quarter, 1.6 percentage points higher than the level in the first three months of 2017, Bloomberg-compiled data show.
Even for developers getting the green light to tap the offshore bond market, they still likely face a “material” increase on debt costs next year, Yip said yesterday.
“The market is somewhat weak, and issuance supply is coming up,” Yip said. “Investors may only pick the strongest issuers or those offering the highest yields.” Bloomberg
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