This week, two more Chinese real estate developers began raising dollar-denominated debt financing as China’s government struggles to restrict lending and deflate a housing price bubble. In an interesting twist, both developers had already received significant investments from Hong Kong firms.
Greentown China, which was acquired by Hong Kong’s Wharf during 2012, is selling subordinated perpetual securities at a yield of about 9.25. Cifi, another mainland developer with a Hong Kong connection, is offering five-year debentures to yield about 9.25 percent. The Hong Kong-listed company took on US$50 million in investment from private equity firm RRJ Capital last October.
The moves by Cifi and Greentown followed soon after Shanghai-based Shimao Property raised a $600 million seven-year note on Janary 14th.
The scramble for debt financing comes as China’s traditionally lucrative real estate business begins to be compressed by government tightening of credit which have made it difficult to borrow domestically, and rising land costs, which are rapidly eroding margins.
Speaking of the impact of the government’s recent credit clampdown, Societe Generale analyst Wei Yao pointed out that, ”Several borrowing channels have already started to cool, responding to tight liquidity conditions. Policymakers are poised to rein in shadow banking and cap local government debt growth.”
In addition to the US$50 million of equity financing that Cifi received from RRJ last year, the private equity firm bought $100 million of CIFI bonds last year. Cifi also sold $225 million in bonds during Sept. 11, and Greentown raised $300 million in debt financing the same month.