Peak in Bond Repayments Expected to Put Pressure on Chinese Real Estate Firms

An approaching peak in scheduled bond repayments is expected to put considerable pressure on Chinese real estate firms in 2019 given ongoing high borrowing costs.

The high cost of debt for Chinese real estate companies was recently highlighted by Modern Land’s (当代置业) issue of USD$150 million in senior notes that are scheduled to mature in 2020, with a rate of as high as 15.5%.

Domestic observers expect financing and refinancing costs for Chinese real estate companies to remain high in 2020, severely crimping their liquidity given their heavy debt loads and repayment pressure.

The past few years have seen a rapid rise in debt issuance by Chinese real estate companies which has drawn concern from regulators.

A report from Sinolink Securities indicates in 2013 Chinese real estate firms raised just 43.535 billion yuan in debt, yet the following year this figure had surged to 396.5 billion yuan.

In 2015 debt issuance hit a historic high of 1.2456 trillion yuan, for a YoY rise of 214.15%, while in 2016 the reading was 982.4 billion yuan.

Pressure from regulators brought the figure down to 328.6 billion yuan in 2017, for total financing of 2.9531 trillion yuan over a four year period.

Figures from Wind further indicate that the total debt of 131 listed A-share real estate companies was 7.89 trillion yuan in the third quarter of 2018, for a rise of 19.5% compared to the reading of 6.6 trillion yuan at the end of 2017.

76 out of these 131 companies, or 58%, saw their debt ratios during the period.

Vanke’s debt as of the third quarter of 2018 was 1.22 trillion yuan, for a 24.5% increase compared to 978.6 billion yuan at the end of 2017.

Greenland Holdings saw its debt rise by 12.5% over the same period to 849.7 billion yuan, while Poly Real Estate’s debt rose by 27.18%, from 538.2 billion yuan to 684.5 billion yuan.

Wind data further indicates that the real estate sector issued 802 bonds in 2018, raising a total of 680.74 billion yuan.

A report from Hengda Research (恒大研究院) indicates the peak period for debt repayment by Chinese real estate firms kicked off in the second half of 2018.

As of the end of June 2018 the interest bearing debt balance of Chinese real estate firms was approximately 19.2 trillion yuan, led by real estate development loans, followed by entrusted loans, trust financing, bonds, merger loans,  overseas debt and asset backed securities.

From second half 2018 to 2021 the repayment scope is set to be 2.9 trillion yuan, 6.1 trillion yuan, 5.9 trillion yuan and 3.4 trillion yuan.

 

 

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