The new year could be a tough one for China’s highly leveraged real estate developers, as $17.3 billion worth of bonds come due next year at a time when developers are not selling any new notes.
Developers have turned to the Shanghai Stock Exchange to sell bonds that financed about 40 percent of onshore debentures over the past two years, according to Bloomberg.
But they haven’t sold any new bonds since October when regulators raised the threshold for developers to sell bonds on the exchange in order to deflate its real estate bubble. This comes at a time when a record $17.3 billion of developer bonds are set to come due next year, with another $27.9 billion due in 2018.
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Smaller developers will feel the pinch the most, as larger firms are still able to sell exchange-regulated bonds, according to NN Investment Partners.
“Overall, funding conditions will become more challenging in 2017,” said NN Investment senior credit analysis Clement Chong. “Only stronger developers can issue onshore bonds, subject to a number of conditions. But smaller builders will be forced to come to the offshore market to issue bonds, which will be subject to regulatory approval.”
Greenland Group , the majority partner in Brooklyn’s Pacific Park, has the second-highest level of outstanding debt with 282 billion yuan.
The real estate industry accounts for as much as 20 percent of China’s economy, according to Bloomberg. Meanwhile, the yield premium on AAA-rated domestic corporate notes has reached its widest since July 2015.
Lending outside China is also becoming more difficult as banks charge more to lend to builders offshore. Government efforts to curb capital heading offshore have made it more difficult for developers to make overseas bond repayments, according to analyst Sun Binbin of TF Securities in Shanghai, where The Real Deal last month hosted its property showcase.
“The curb in refinancing will certainly increase Chinese developers’ debt burden,” he said. “It’s hard to predict when China’s exchanges will resume property bond sales.” [Bloomberg] – Rich Bockmann