Property developers raising cash abroad

China Daily, February 17, 2011

China's major property developers have been stepping up their efforts to raise funds overseas in response to a gradually tightened cash flow, as the government's tightening real estate measures are expected to lead to a big drop in transactions.

According to a report by Royal Bank of Scotland, Chinese property developers' off-shore debt financing this year has totaled 28 billion yuan ($4.25 billion), accounting for 40 percent of last year's total value.

Evergrande Real Estate Group Ltd sold 9.25 billion yuan of synthetic offshore renminbi bonds in mid-January, while Hopson is pricing its $300 million bond with a 11.75 percent yield.

Country Garden Holdings Co Ltd announced on Feb 7 a proposed issuance of senior notes with a seven year maturity to fund existing and new property projects (including construction costs and land premiums) and fund general corporate expenses.

"Such intensive offshore financing measures reflect property developers' preparation for the market change this year, given the industry's already high debt ratio," said Deng Jingjing, real estate analyst with Guotai and Junan Securities. "The expectation of a stronger yuan also makes the cost of offshore financing lower."

The credit rating company Standard & Poor's warned on Tuesday that the surge in bond sales has weakened Chinese developers' profiles.

Several property developers could be "caught out" if market conditions turn quickly, credit analyst Bei Fu said in a report. Debt issuance is likely to weaken the credit ratios of Evergrande and Country Garden, it said, according to Bloomberg.

The country's leading property developers recorded robust sales in January, but the government's latest round of tightening measures in late January are expected to result later in plummeting sales.