Oceanwide Real Estate Sells $320M Bond as Developer Debt Grows

Oceanwide Real Estate International opened up a new season of bond issues this week with a $320M sale as debt by China’s real estate developers reached historic levels.

The international bond sale by the Beijing-based developer comes as Oceanwide seeks to develop a 45-storey five-star hotel, apartment and retail project that it acquired in December 2013 for $200 million.

As China’s housing market has slowed this year, the country’s real estate companies are increasingly turning to overseas markets for cash to keep their projects going. The result has been record levels of offshore loans to Chinese developers and debt loads in the industry said to reach the highest levels since 2005.

Oceanwide Bond Helped by Mainland Guarantee

Although the bond sale was by BVI-based Oceanwide Real Estate International, the notes were guaranteed by its mainland grandparent Oceanwide Holdings, as well as by Hong Kong-listed Oceanwide Holdings (Hong Kong).

According to a story in FinanceAsia, Beijing-based Oceanwide has provided a keepwell deed to backup the bond, a measure which is said to have been facilitated by recent relaxation of rules on cross-border guarantees by China’s State Administration of Foreign Exchange (SAFE).

Oceanwide joined the flood of Chinese developers investing in overseas development projects during December last year, when it purchased the Figueroa Central project in Los Angeles for a reported $200 million. The company has yet to break ground on the project.

Developer Debt Reaches Records as Cashflow Constricts

Oceanwide’s bond issue is the first since mid-year financial reports revealed record levels of debt among China’s property developers as the country’s housing market slowdown begins to hit their cashflow.

A report this week by Bloomberg found that by mid-year the country’s developers had borrowed $5.9 billion from foreign banks in 2014, up 39 percent from the same period last year. Debt now equals 128 percent of equity among China’s listed developers – the highest level since 2005.

China’s developers have headed offshore for their funding this year after state-run mainland banks began shying away from the increasingly risky sector. This surge in foreign funding coincides with a rapid slowdown in sales and gradually declining home prices.

A report published by the China Real Estate Index System (CREIS) this week found that average home prices declined by 0.6 percent across China last month, the fourth straight month of housing price declines in a once frothy market. Contracted sales of new homes slid 10.5 percent during the period from January through July, compared to the same months last year, according to Moody’s