China Resources Land to Issue $3.9B in Bonds as Mainland Developers Cash Up

China Resources Land Limited announced in a stock exchange statement on January 31st that it would issue $3.9 billion in offshore bonds, following in the footsteps of 14 other Chinese developers that issued a total of $8.6 billion worth of bonds in the first month of the year.

The developer says that its bond sale program will run for a period of 12 months starting from 30 January 2019, although China Resources Land has yet to provide further details about the maturities or yields for the planned securities.

The proposed program would not affect the company’s Baa1/stable credit profile, according to a statement issued by Moody’s that same day. Standard and Poor’s,and Fitch rate the company’s credit at BBB+/stable.

Feeding a Growing Business

While the Hong Kong-listed firm has not issued an official statement on the purpose of the bond sale, part of the funds may be used to defray its acquisition spree last year, which amounted to RMB 98 billion in attributable land premiums, close to 50 percent more than the company had acquired in 2017.

Already in 2019, the company has further added to its project pipeline by purchasing a commercial site in Shanghai’s Jing’an district for a record RMB 5.8 billion.

Chinese Resources issued RMB 6  billion ($889 million) in onshore bonds in March of last year, and added another RMB 4 billion in April.

Driven by the bond sales, the company’s net interest-bearing debt to equity ratio increased modestly in the first six months of the year to 47.2 percent from 35.9 percent at the end of December 2017, below the 133 percent average for the industry, according to Reuters data.

In that same period, the Shenzhen-based developer’s revenue climbed 40 percent year on year to RMB 43.78 billion ($6.5 billion) while its net profits rose 95 percent. The company has yet to publish figures for the remainder of 2018.

Mainland Developers Gorge on Bonds

China Resources Land’s debt sale subscribes to a pattern common among Chinese developers which announced multi-billion bond sales in the first month of the year.

Country Garden, China’s largest developer by revenue, issued $1 billion in new notes during January (with yields of up to eight percent) while Evergrande, the country’s third largest, issued $3 billion last month, with yields of up to 10.5 percent.

Other developers issuing bonds last month included Zhenro Properties, which issued $150 million at a 10.6 coupon, China Aoyuan Group, which issued $500 million at an 8.5 percent yield, Yuzhou Properties ($500 million at a 8.6 percent rate), and Future Land Development Holdings ($300 million at 7.5 percent)

In total, according to data cited by Reuters, 14 developers have issued $8.6 billion worth of bonds so far this year, more than two times the amount they issued in the same period of last year.

Bills Coming Due

The acceleration in fund-raising comes as Chinese developers face an unprecedented pile of close to $98 billion in debt set to mature this year, up from $65.5 billion in 2017 and $24.8 billion the previous year. A lot of this money, Reuters notes, was borrowed two years ago when interest rates were low, and liquidity was high.

As Beijing tightened credit in the second half of last year, Evergrande was forced to issue two-year notes late last year carrying double-digit yields. Defaults followed the credit crunch, spiking 240 percent between 2017 and 2018 to 119.

In the remainder of the year “Chinese high-yield issuers will face a challenging environment, but investment grade issuers should still have more financial flexibility and funding channels to address their refinancing issues,” Nino Siu, a Moody’s vice president and senior analyst said in a January statement.

The credit agency expects, however, that “Chinese authorities will continue to launch supportive measures to facilitate refinancing and boost investor sentiment in the onshore market.”