International bond investors are giving Chinese property companies the cold shoulder, forcing them to look elsewhere for funding as concerns mount over corporate governance and cash flow in the sector.
Mainland developers have become a core part of the Asian junk bond market, raising $19.5bn in 2013 and $21.4bn last year, according to Dealogic.
A quarter of that borrowing came in January in both years. Chinese real estate companies raised $5.3bn in dollar bond markets during the first three weeks of 2013 and $4.9bn over the same period in 2014.
This year, not a single deal has been completed. Bankers say a number of property companies — including some of the best known — have postponed debt-raising plans or are looking elsewhere for financing as investors turn increasingly cautious.
“You don’t want to go hat in hand to investors when they feel they’re catching a falling knife,” said the head of debt capital markets at one investment bank.
The highly indebted sector has been rocked by the bond and loan defaults of Kaisa, a Shenzhen-based, Hong Kong-listed developer. The company, which has $2.5bn in outstanding offshore debt, ran into trouble at the start of December when the local government imposed a sales ban at some of its properties.
The chairman and chief financial officer stepped down soon after, triggering a loan repayment that the developer then missed. Days later, Kaisa failed to pay a coupon on one of its US dollar bonds, prompting Chinese courts to freeze its assets.
Many analysts still believe Kaisa will prove an isolated case. But the incident has “completely shattered confidence” in the sector, said a debt banker in Hong Kong, with many investors fearing that Beijing’s sweeping anti-corruption campaign is switching its focus to property companies.
Echoing Kaisa’s early problems, last week a handful of other developers admitted that they too had been the subject of sales bans in Shenzhen. Companies quickly sought to play down investor fears, with one issuing a statement denying its chairman had fled to the US, while another rejected claims that its chairman was under investigation.
The constant stream of updates and rumours surrounding the sector has created a “political risk panic”, said ANZ credit strategist Owen Gallimore, prompting a sell-off in both shares and bonds. Shares in Fantasia have fallen 12 per cent in the past week, while Glorious Property is down 27 per cent. Investors have instead gravitated towards the biggest names in the sector, especially those with state backing, such as China Vanke, the country’s biggest developer.
Bonds across much of the sector are now trading well below par, making new deals a far harder sell in the near-term. Analysts at Jefferies said the Kaisa situation will “distort the timetable” for developers looking to raise or refinance debt, while the regulatory vetting process will be “more stringent than usual”.
Chinese property companies have become far more reliant on offshore financing than they were just a couple of years ago. Agile and Country Garden, for example, both get about half their funding from international credit markets.
Last year proved tough going for the housing market in China, with sales and transaction volumes both falling. However, looser monetary policy has helped steady the sector in recent weeks.
澳新银行(ANZ)信贷策略师欧文?加利莫尔(Owen Gallimore)表示，围绕房地产业不断流传的最新消息及种种传闻，产生了一轮“政治风险恐慌”，在股市和债市同时引发了抛售潮。在过去一周内，花样年控股(Fantasia)的股价下跌了12%，而恒盛地产(Glorious Property)的股价则暴跌27%。与这些企业相反，投资者已开始倾向于房地产业的知名品牌，特别是那些有政府背景的企业——比如中国最大的地产开发商万科集团(China Vanke)