Regional financial markets may be regaining their trust in China’s real estate developers, as Sino-Ocean Land successfully priced a $1.2 billion dual-tranche bond yesterday.
The Beijing-based builder raised a $700 million five-year note as well as a $500 million 12-year note, according to story today in FinanceAsia.
The successful bond sale by the state-owned subsidiary of Chinese shipping giant, COSCO, is the first debenture sale by a Chinese developer since Shenzhen-based Kaisa Holdings defaulted on a $51.6 million loan on December 31st. Kaisa has subsequently failed to make an interest payment on a $500 million bond this month, as well as on a trust product obligation.
Sino-Ocean Breaks the China Bond Drought
After China’s domestic banks became more reluctant to lend to property developers in the last two years, the international bond markets became more important to the credit-hungry industry.
According to a story in the Financial Times, Chinese real estate companies raised $5.3 billion in US dollar bonds during the first three weeks of 2013 and $4.9 billion during the same period last year. For 2015, the Chinese core industry had raised $0 on the international bond markets until yesterday.
Sino-Ocean is seen as being able to break through both because of its strong state-backing through COSCO, and because of a revival in investor confidence that Kaisa bond-holders may be repaid and that the industry as a whole is not in danger.
Goldman Sachs Confident in Chinese Developer Debt
Some financial managers see the widespread concern over the viability of Chinese developer debt as a profit opportunity.
“It is actually creating really some attractive buying opportunities in good-quality assets that are being thrown out with the bad,” said Philip Moffitt, head of Asia-Pacific fixed-income at Goldman Sachs Asset Management, said in an interview published in Bloomberg today.
Moffitt added that, “The situation in the property market is precarious, but that isn’t a new phenomenon.”
Even Kaisa’s debt has recovered as reports spread that the Shenzhen government is looking for investors to take over the company. Some of the developer’s bonds were trading yesterday at 63.7 cents after sinking as low as 26.3 cents earlier in the month.
Kaisa Struggles to Sort Itself Out by February 9th
Confidence in Chinese developer debt could fall once again, however, should Kaisa fail to meet its bond obligations by February 9th, when the 30-day grace period on its January 8th default expires.
This week Sunac chairman Sun Hongbin, whose attempted merger with Greentown failed last year, declared himself the leading candidate to take over the troubled developer. Shenzhen Overseas Chinese Town and China Vanke are also said to be in the running. However, an unconfirmed report this week indicated that the Shenzhen authorities were unrelenting in their shutdown of sales at four of Kaisa’s projects.
While Kaisa did announce this week that it has hired a financial advisor to assist in restructuring its debt, the most important voice regarding the developer’s fate – the Shenzhen government – has so far remained silent.