China developers bite the bond bullet with funding costs spiking

HONG KONG: Some Chinese developers were quick to complete the bulk of their refinancing early in the year. Those who waited now risk paying dearly for their tardiness, with borrowing costs doubling since January.

An added complication for developers is that China’s National Development and Reform Commission (NDRC) is said to have told several market participants that it is considering stricter assessments for companies looking to extend the validity of their offshore debt issuance quotas to next year, forcing some firms to borrow now rather than wait for market conditions to improve.

The NDRC said it hasn’t made any changes to the quota extension process. China’s home builders have sold US$37bil of dollar bonds so far this year for refinancing, and about 65% of that was completed by June, according to Bloomberg-compiled data.

Meanwhile, average yields on Chinese junk bonds, which mainly consists of developers, have surged to a four-year high of 11.8%, according to ICE Bank of America Merrill Lynch Index.

Developers are concerned about potential changes in NDRC’s approach toward Chinese property bonds, according to Clement Chong, a senior credit analyst at NN Investment Partners. “If they can get the money quickly, then they would do it,” he said, adding that current market conditions aren’t helpful for issuers.

This week alone, Hengda Real Estate Group Co, a unit of China Evergrande Group, sold a US$1bil tap of a two-year bond at 11% after pricing a US$1.8bil offering in late October. Times China Holdings Ltd sold a two-year offering at 11% and Greenland Holding Group Co priced a one and a half year offering at 9.25% this month.

Developers have been caught by tight funding conditions due to a deleveraging push by policymakers, which combined with rising global interest rates has resulted in some of the steepest borrowing costs for dollar bonds in the region the for the sector. — Bloomberg