Chinese property developer Country Garden has postponed the launch of a US dollar bond, the latest sign of growing concern about the health of one of China’s most important sectors.
The Hong Kong-listed company met investors during the past two weeks to gauge appetite for a deal, after announcing its plans to raise fresh debt in a filing to the stock exchange last month. But management has chosen not to press ahead with a deal at this time, say people familiar with the matter.
The Chinese property sector has come under more and more scrutiny from investors and economists in recent days as data point to a sharp deterioration in the housing market.
During the first four months of this year construction starts fell by almost a third when compared with a year earlier, figures released on Tuesday showed. Developers have been slashing prices in some cities to attract buyers.
The turnround follows years of rapid construction, which some fear have left China with a large overhang of surplus apartments in many areas. Zhang Zhiwei, an economist at Nomura, has highlighted this as the top risk to the world’s second-largest economy this year.
As the single biggest contributor to Chinese growth, housing is also a key source of demand for commodities worldwide.
Country Garden’s decision not to test the market follows a sell-off in Chinese property bonds, particularly those of longer duration.
Yuexiu’s bond due in 2023 trades at 89 cents to the dollar, while Evergrande’s debt maturing in 2018 has dropped to 88 cents.
Bonds sold recently by Times Property and Cinda– a distressed debt manager with heavy exposure to property – have traded lower in the secondary -market.
The performance of Chinese property bonds stands in contrast to the rest of the Asian credit market. April was a record month for debt sales, putting the region well on track for its best year ever.
Chinese developers have been highly active in the bond markets during the past two years, helping to drive soaring levels of issuance in Asia. Since 2010, mainland property companies have borrowed almost $50bn from international bond investors.
Many developers have also suffered in the equity market this year. Country Garden and Fantasia are both down a third, Agile is down 28 per cent and Hopson is off over 20 per cent.
But stocks have rallied this week on reports that China’s central bank has asked commercial banks to speed up mortgage approvals to help support the market.
Country Garden had been planning to use funds from a deal to refinance existing debt. Its last dollar bond was sold in September 2013, when it borrowed $750m over eight years paying a coupon of 7.25 per cent.
越秀(Yuexiu) 2023年到期的债券交易价格为面值的89%，而恒大(Evergrande) 2018年到期的债券价格已跌至面值的88%。