Beijing Places Restrictions on Foreign Bonds of Chinese Real Estate Companies

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The Chinese government has placed restrictions on the usage of funds raised by domestic real estate companies via offshore bond offerings, amidst concerns about the maturation of nearly 700 billion yuan in debt in the second half of 2019.

The National Development and Reform Commission (NDRC) recently issued the “Notice Concerning Requirements in Relation to Application, Filing and Registration of Foreign Bond Issuance by Real Estate Enterprises (对房地产企业发行外债申请备案登记有关要求的通知), in response to an imminent wave of maturing debt.

The Notice stipulates that real estates companies issuing offshore bonds may only use the proceeds to swap out medium or long-term foreign debt which is scheduled to mature within the next year, in order to “prevent potential risk for real estate enterprises issuing foreign bonds.”

A report from state-owned media indicates that as of the end of 2018 the Chinese real estate sector’s interest-bearing debt balance via “main channels” stood at 20.3 trillion yuan, 6.8 trillion yuan of which is scheduled to mature in 2019, followed by 6.6 trillion yuan in 2020 and 5.4 trillion yuan in 2021.

Data from Wind further indicates that in 2019 508 domestic bonds of Chinese real estate enterprises are scheduled to mature, for a total repayment sum of 530.302 billion yuan, 28.88% ahead of the figure for 2018.

66 foreign bonds of Chinese real estate enterprises are scheduled to mature in 2019, for a sum of USD$23.757 billion, 30.91% more than the figure for last year.

Analysts estimate that nearly 700 billion yuan in Chinese real estate sector debt is scheduled to mature in the second half of 2019.

The NDRC Notice also requires that real estate enterprises “formulate overall plans for the issuance of foreign bonds, giving comprehensive consideration to factors including exchange rates, interest rates, currencies and enterprise balance sheet structures,” as well as “appropriately select financing tools, make flexible use of financial products including currency swaps, interest rate swaps, future exchange contracts, options and swaps.”

In order to “effectively prevent foreign debt risk,” the NDRC called for Chinese real estate enterprises to maintain “rational ratios” with regard to the foreign debt of domestic parent companies and their overseas branches, renminbi and foreign currency-denominated foreign debt, short-term and medium and long-term foreign debt and domestic and foreign debt.

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