Chinese developers find buyers for bonds, despite some defaults and specter of further regulation

Developers have sold $20.3B worth of bonds so far this year


China’s real estate companies, which ran up debts at home and abroad, are finding plenty of buyers for their bonds, despite some concerning signs for the industry.

Chinese real estate firms have sold $20.3 billion worth of bonds since the beginning of the year, a 16 percent increase over the same period last year, according to the Wall Street Journal.

That’s more than 2017 and 2018 as well, but pales in comparison to the $34.02 billion in bonds sold in that period in 2019.

This year has also seen developers Sunshine 100 China Holdings, Oceanwide Holdings, and China Fortune Land Development default on debts.

Since last year, the Chinese government has been making moves to temper growth in the sector. Home prices have been growing rapidly over the last couple of years and both buyers and developers were taking on worrying amounts of debt.

The government capped developer leverage and bank lending to buyers earlier this year with the aim of slowing down the market.

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The growth of home prices slowed through the end of last year, but lately pricing appears to be accelerating again.

Fears of further government intervention appear to be affecting some large developers.

China Evergrande Group has recently seen a selloff in bonds and shares after a report from Chinese news outlet Caixin raised concerns that the government was turning its focus on the company.

Still, much of the new debt being issued replaces old debt and CreditSights senior credit analyst Luther Chai said most companies should improve their creditworthiness this year.

“Even though most developers may still record a growth in total debt, we expect the pace of year-on-year debt growth to slow,” he said.

[WSJ] — Dennis Lynch