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CHINESE developers’ sales of dollar bonds more than doubled this year, reflecting confidence the government will tolerate a sustained property boom as home prices climb at the fastest pace since January 2011.
The companies sold US$17.88 billion (RM57.4 billion) of the notes as at Oct 20, up from about US$8 billion for the whole of 2012, according to a report by Moody’s Investors Service. The average yield on Chinese issuers’ dollar debt was 4.42% in 2013, less than the 5.51% in the previous five years, the HSBC Asian US Dollar Bond Index shows. That compares with an average of 6.03% for yuan-denominated corporate bonds included in the Bank of America Merrill Lynch China Corporate Index.
Billionaire Hui Ka Yan’s Evergrande Real Estate Group Ltd, China’s biggest homebuilder by sales, was among issuers this month as the US Federal Reserve considers cutting stimulus that drove down US borrowing costs. Appetite is being backed by Moody’s rating upgrades and data showing housing prices in the four biggest cities climbed by at least 16% in September. President Xi Jinping refrained from criticising the rally in Oct 29 comments on housing policy before a four-day Communist Party leadership meeting which ended yesterday.
“Going into November and December, we expect fundraising activities by rated developers to continue,” Kaven Tsang, a Hong Kong-based senior analyst at Moody’s, said in a Nov 6 phone interview. “Contracted sales improved, as reflected in their interim results, so bond investors have become more interested.”
Sales Jump
China Vanke Co, the nation’s biggest listed developer by market value, said in a Nov 4 filing that sales in the first 10 months of this year totalled 145.85 billion yuan (RM76.7 billion), exceeding its 2012 full-year revenue of 141.2 billion yuan. Evergrande’s contract sales in the January to October period climbed 25% to 91.3 billion yuan.
Evergrande, rated B1 by Moody’s, issued US$500 million of bonds at 8.75% due 2018 on Nov 6 to refinance existing debt, after selling US$1 billion of five-year securities at the same rate on Oct 30. Greenland Hong Kong Holdings Ltd last month sold US$700 million of notes due 2016 at 4.75% to refinance current borrowings and fund projects.
Greenland was one of seven property firms which received an upgrade from Moody’s this year. That compares with four in 2012 and is the most since at least 2008.
Cheaper Rates
China has restricted developers from issuing domestic bonds since 2010 as part of efforts to curb property price gains, while the central bank reported a measure of new onshore credit on Monday that fell short of estimates. At least US$21 billion of notes and loans are estimated to mature before the end of 2014, data compiled by Bloomberg show.
“It’s difficult to get government approval for selling local bonds, except for affordable home projects,” said Dai Fang, a property analyst at Zheshang Securities Co in Shanghai. The cost of issuing dollar bonds is also often cheaper than yuan loans, he added.
A gauge of investments in China’s residential property development and land purchases rose 18.9% in the first 10 months of 2013 to 4.72 trillion yuan, according to data from the statistics bureau, from 10.8% growth a year earlier. Residential land supply in Beijing, Shanghai, Guangzhou and Shenzhen have been either close to or exceeded the five-year average in the first three quarters of 2013, according to a statement on the Ministry of Land and Resources website.
Vanke bought 3.4 million sq m of land in the first half of 2013, almost five times the amount it purchased a year earlier, according to company filings. The average cost of land for new projects jumped 23%.
Party Plenum
“It’s a good time to buy land,” said Dai at Zheshang. “If policies coming from the third Communist Party plenum are positive to the property market, then they’ve got the land reserves at hand. If it’s the opposite, then they’ve improved their financial status.”
The Plenary Session will usher in “unprecedented” economic reforms, Yu Zhengsheng, who ranks fourth in the seven-member Politburo Standing Committee, said last month. The official Xinhua news agency said on Nov 4 the meeting would be a watershed as drastic economic policies will be unveiled, including giving more scope to market forces.
President Xi, in a study session of the decision-making Politburo in October, talked about a system under which the government would cover basic social housing while “multiple levels” of other accommodation needs are met mainly by the market. The remarks, which had no mention of curbing home prices, sent developers’ stocks soaring by the most in more than a month.
New Credit
China’s broadest measure of new credit fell by more than estimated in October, suggesting authorities are trying to keep shadow-finance risks in check.
New home prices excluding government-sponsored social housing jumped 21% in Beijing in September from a year earlier, as the national government refrained from introducing more property curbs that would hinder economic growth. The Chinese capital raised down payments for second homes to 70% in March, while Shanghai did the same this month. — Bloomberg
This article first appeared in The Edge Financial Daily, on November 13, 2013.
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