New land in China is now going for as much as three times the auction minimum at the same time that the country’s exchange rates, and the global interest rate outlook appear increasingly unstable.
This combination of financial forces is creating new challenges for mainland developers who need cash to fund new projects – a problem that brought together a panel of debt financing experts for a workshop in Shanghai last month.
The workshop, which was held as part of the PERE China Forum 2016, was led by Mingtiandi’s Michael Cole, and featured presentations by Country Garden Asset Management Vice President, Ben Wang, Baring Private Equity Asia Managing Director Charles Lam, former Carval director Avery Colcord and Standard Chartered Executive Director Marc Bosnyak.
In the three hour group session, attendees learned about debt financing solutions including traditional bank loans, mezzanine financing from private equity lenders, and asset-backed securities, as well as learning about how non-performing loans are typically resolved in China.
Sales of Asset-Backed Securities Reach RMB 205B in 2015
The highlight of the session for many attendees was Wang’s presentation on Country Garden’s strategy to refinance its debt through asset-backed securities. The mainland residential giant has largely turned away from issuing bonds on international financial markets, as it now is able to generate cash domestically through sale of asset-backed securities bearing interest rates of less than five percent.
This securitisation approach was opened to large-scale domestic developers by the government in 2014 and popularised in 2015 as capital costs on international markets soared for Chinese builders following the default of Kaisa Group in March of last year.
Sales of asset-backed securities soared in China soared from RMB 40.1 billion in 2014 to RMB 205 billion last year, according to Country Garden’s figures. The securities, which are backed by returns on sales of residential units, are traded through mainland stock exchanges, or sold privately through wealth management channels.