In May Central China Real Estate, one of the Chinese mainland’s many property developers, proposed issuing Singapore dollar-denominated notes, to refinance a convertible bond due in August.
The proposed offer received a BB- rating from Standard & Poor’s, reflecting the company’s “increased debt leverage, growing competition in Henan province, and limited geographic diversity”, said the rating agency. “We assess the company’s business risk profile as ‘fair’ and its financial risk profile as ‘aggressive’.”
For many years before it materialised in meaningful scale, capital market practitioners anticipated the development of an Asian bond market that would reduce the region’s reliance on bank finance. Today the Asian bond market is well established. Morgan Stanley expects the size of the market to reach $1tn in three years and issuance in 2014 of $150bn.
The growth in Asia’s bond market has been driven in large part by Chinese issuers, whether in US dollars or local Asian currencies. Up to half of all issuance year-to-date has been from Chinese companies, leading Morgan Stanley to note “Asia is evolving into a China-centric investment grade credit market”.
There have been ugly episodes. Asia Aluminium, a Hong Kong-listed Chinese aluminium processor, filed for liquidation five years ago, leaving bondholders, who had invested in an offshore entity that had no assets, with nothing.
But the market has, perhaps surprisingly, seen such episodes as one-off outliers. The enthusiasm for Chinese names in a world that remains hungry for yield remains strong. Much of that demand comes from US investors. That is, as Morgan Stanley notes, despite a market that has underperformed, and that has seen both fund outflows and growing supply.
Now there may be worse to come. “The prospect of tighter credit conditions represents increasing downside risks to the highly China-sensitive Asia high-yield class,” Morgan Stanley analysts add.
The risks are highest for property issuers. That is because no single sector seems to have had as voracious an appetite for credit as real estate. Demand for credit from property companies has been growing at about double the rate as, say, for industrial companies.
Offshore bond markets have been a huge source of capital for property companies such as Central China. As the property market slows in China, might there be big defaults that could shake the rosy projections of analysts anticipating a $1tn Asian credit market by 2017? In fact, the combination of several factors makes investing in the bonds of Chinese property developers an increasingly iffy proposition.
Many property developers went offshore to raise money because of strict rules in China about how land acquisition and development can be financed. Banks are not allowed to finance land acquisition. That has led developers to the shadow market or offshore. Beijing is hardly likely to be as sympathetic to the claims of foreign investors as Chinese investors when these developers run out of cash.
Most developers are highly levered. Pre-sales from buildings not yet complete finance later stages of construction. That never used to be a problem. But suddenly it is. Chinese real estate sales dropped 7.8 per cent in April, while volumes dropped more than 20 per cent in the top 40 cities in China, data from Credit Suisse show.
Then add in the currency mismatch. Until February, few people worried that the revenues of Chinese property developers were all in renminbi, because the renminbi was strengthening against the dollar and against a basket of trade-weighted currencies. That strengthening reflected huge surpluses in China’s balance of payments and government policy, committed to the renminbi becoming a reserve currency in coming years.
But in the last week of February the People’s Bank of China suddenly reversed course. The redback is now down against the dollar, partly reversing a 30 per cent rise in the preceding years. While regulators orchestrated the initial shift in the renminbi’s fortunes, the markets have turned bearish on the currency, suggesting further weakness to come. Because this development was so unexpected, bankers say almost no Chinese property developers hedged their foreign currency debt.
Government officials and investors such as Blackstone Real Estate and distressed debt performers, including Clearwater Capital and Shoreline Capital, all expect some debt restructuring and consolidation in the property market in coming months.
During the Asian financial crisis, many Indonesian issuers defaulted on foreign currency debt as the rupiah slid from about 2,400 to the dollar to a fraction of that. China has capital controls and reserves of almost $4tn, making a currency collapse unthinkable. But it does not mean investorsoffshore cannot lose a lot of money in China.
今年5月，中国内地房地产开发商建业地产股份有限公司（Central China Real Estate，简称建业地产）计划发行以新加坡元计值的优先票据，为将于今年8月到期的一批可转债进行再融资。
标准普尔(Standard & Poor's)对此次计划发行的票据给出了BB-评级，并表示，这一评级反映了建业地产“债务杠杆上升，在河南省内面临的竞争加剧以及地区布局不够多元”。该评级机构称：“我们将建业地产的经营风险水平评为‘合理’，将其财务风险水平评为‘激进’。”
但在2月份的最后一周，中国央行(People’s Bank of China)突然改弦易辙。人民币兑美元汇率现已呈下跌走势，部分回吐了过去几年来累计30%的涨幅。虽然人民币汇率走势的最初转变是由监管当局一手导演的，但市场对于人民币的态度已转为看跌，这表明未来人民币或进一步走软。银行家们表示，由于这一局势发展是如此出乎意料，几乎没有一家中国房地产开发商为它们的外币债务进行了对冲。
中国政府官员、黑石房地产公司(Blackstone Real Estate)等投资者，以及包括Clearwater Capital和海岸投资(Shoreline Capital)在内的不良债权投资机构都认为，未来几个月房地产市场中将出现一批债务重组和整合交易。