Others News
- Property developers seek funds overseas
Date: 8-May-2007 Sources: (Shenzhen Daily)
THE government's resolve to cool the country's red-hot property sector has forced many developers overseas in search of funding and analysts say debt investors must be picky as the rush of issuers gathers speed.
The rapid pace of urbanization in China has fueled a property boom resulting in a scramble for funds by developers looking to finance land acquisitions.
But the government is concerned that a speculative bubble is building up in the property market and has cracked down on bank lending to the sector, sending many borrowers to international debt and equity markets.
Aggregate offshore bonds issued by mainland property companies jumped to US$1.8 billion in 2006 from US$375 million in 2005, data from Dealogic show, as the government further tightened policies to dampen property speculation.
'Some people are taking a top-down approach, but we think there is a need to take a credit-specific approach as increasingly issuers from down the credit curve come to the market,'said Glenn Ko, credit analyst with HSBC.
Early issues from mainland property companies were from borrowers like China Overseas Land, rated BBB-minus, and Shimao Property Holdings Ltd., rated BB-plus. But this year has seen bond issues from China Properties Group Ltd. and Lai Fung Holdings, both rated B-plus.
More issues from the sector are expected this year.
Investors are beginning to differentiate, with top tier companies yielding around 5.7 percent to 7.5 percent, while lower rated firms must shell out more than 9 percent.
Analysts say the higher yields demanded by the market are a sign of a maturing investor base, not souring appetite.
'Investors are getting smarter to differentiate credit quality between different issuers to ensure that they get sufficient returns to more than offset the risk,'said Annisa Lee, credit analyst with Lehman Brothers.
She said that rising supply was not a risk as the overall issuance level was still below overall market expectations.
Added HSBC's Ko: 'Sometimes demand creates supply and supply creates demand. It is a virtuous cycle.'
He said that supply risk was far greater for Indian banks, which are bigger and more frequent debt issuers.
The outlook for Chinese property assets has also been supported by recent earnings announcements.
Greentown China Holdings Ltd. reported its net profit in 2006 more than doubled to 1.29 billion yuan (US$167.1 million), leading to expectations of similar strong performances from others.
'The good results are from the stronger boys, the bigger players,'said Desmond Soon, fund manager with Pacific Asset Management. 'There is a concern as to how the property measures affect the weaker ones.'
Still, he said, if a weaker player ran into financial trouble it could trigger a sell-off across the entire sector.
The government has not only curtailed lending to the property sector but has also announced non-bank related restrictions such as tightening procedures for land use approvals, raising land-use fees and implementing a land appreciation tax.
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