Chinese property developers’ bond issuance picked up significantly in November, nearly all issuers SOEs

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Chinese property developers that had struggled in a sector-wide cash crunch finally saw a pick-up in financing this month after authorities repeatedly urged financial institutions to maintain stable lending to the sector and ensure homebuilder’ reasonable funding needs are met.

Mainland property developers issued 42.5 billion yuan worth of bonds this month as of November 23, more than three times the full-month volume in October and rebounding for the first time after sliding for four straight months, according to data from China Index Academy, one of China’s largest independent real estate research firms.

Among the more than 20 developers that have issued bonds this month, only one was privately-owned company and all of the rest were state-owned firms, according to the academy. The only private developer – Gemdale Corporation – issued 1.5 billion yuan of medium-term notes on November 10, with a coupon rate of 4.17%.

Property developers’ total financing reached 61.8 billion yuan in the period of November 1 – 23, about 1.7 times of the full-month amount in October, showed the data.

In four month between July and October, property developer’s monthly bond issuance was 54.4 billion yuan, 47.6 billion yuan, 32. billion yuan and 13 billion yuan, according to the academy.

The pick-up in November comes in line with market expectations. Chinese regulators including the People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) said in several events that banks should accurately grasp the country’s real estate financing policy, maintain steady lending to the real estate sector and meet developers’ reasonable funding needs.

On November 9, the National Association of Financial Market Institutional Investors (NAFMII), the country’s interbank market regulator, reportedly held a meeting with representatives of some property developers. After the meeting, a number of developers have announced plans to issue debt instruments in the interbank market.

According to data from the China Real Estate Information Corporate (CRIC), during the period of November 10 – 21, a total of 25 developers and local government financial vehicles announced plans to raise combined 28.8 billion yuan in the interbank market.

Notably, approval of some developers’ bond issuance seems to have been fast-tracked. For instance, Zhejiang China Commodities City Group Co.,Ltd announced on November 10 that it planned to issue 1 billion ultra-short bills and on November 15, the issuance had already completed.

“Several developers’ successful issuance of medium-term and ultra-short bills indicate that the interbank market has indeed opened a window for property developers, which helped boosted market confidence,” said CRIC analysts in a note.

Notably, in the latest round of bond issuance by property developers, most were state-owned ones. “Real estate sector’s risk resistance capabilities have been significantly weakened in the current downtrend and SOEs are favoured by financial institutions,” said the China Index Academy.

State-owned property developer’s financing environment is obviously improving, but it’s still too early to tell whether the improvement will expand to private companies, it said.

Latest data showed that private-owned property developers are still struggling in the sector-wide liquidity crisis. So far in November, several of them have started “self-rescue strategy”, selling assets, borrowing from shareholders and seeking debt extension to reduce debts and increase cash holdings.

For example, on November 18, China Evergrande Group said it had sold all its shareholdings in Hong Kong-listed Hengten Networks to cash in nearly HK$2.127 billion. On November 22, China Aoyuan announced that investors had agreed on an extension plan for its asset-backed securities product worth 816 billion yuan.

Shenwan Hongyuan Securities said in a research note on November 22 that market confidence in property developers’ bonds remains weak and relaxation of real estate financing is aimed at maintaining stability and prevent property developers’ debt crisis from expanding too fast and causing excessive risks.

It noted that the relaxation may not expand to privately-owned property developers in the short term.