Chinese Developers Dump Property to Repay Debt, Issue High Interest USD Bonds

iFeng: 降价清盘！楼市再现抛售潮，刚需上车的机会到了！

June-July is the life-and-death robbery of many developers. The debt of 1.46 trillion yuan due in 2020 will reach its peak in July, with an amount of 149 billion yuan due.

Debt service pressures are occurring year after year, and this year is particularly heavy. Hurry, hurry, hurry!

Since 1.46 trillion divided by 12 equals 122 billion, it sounds like repayment pressure is a near constant this year.

Without one-size-fits-all, without flooding, developers' financing channels are tightened. Either cut prices and sell, or compress projects to cut people and lay off staff, or go overseas for financing.

Or, only one fell apart!

Under heavy pressure, all developers this year, whether it is discounts or sales policies, have revealed a taste of selling.

I monitored the frequency of "zero down payment" and "instalment down payment" in the national real estate field through the public opinion monitoring system.

From mid-March to mid-June, 11,859 new messages were detected across the network, compared with 7,666 in the same period in 2019, a year-on-year growth rate of 54.7%.

Overseas debt (U.S. dollar) is playing a role in the pressure:

Tens of thousands of people shake their numbers and wind up in seconds. Messages of "robbing houses" are emerging everywhere.

Friends who want to get on the bus seem to come to a suitable time node.

So, is this developer's best time to ask for "money" a thirsty time? Or is it that the debt crisis of Chinese housing companies will rise every year?

Under the environment of “no housing, no speculation” and tightening of financing channels for domestic housing companies, let’s discuss an important factor affecting the cash flow of domestic housing companies: overseas debt.

Develoeprs are also paying high interest rates to borrow US dollars as they repay existing US dollar debt.

Borrow new debt! Pay off old debts! Since June, news of overseas financing of Chinese housing companies has also frequently spread.

On June 1, Minfa Group, a developer of the Min system, issued an announcement to issue $176 million in bonds at an unprecedented 22% interest rate.

On June 5th, Fujian-based developer Zhengrong Real Estate announced the issuance of US$200 million in 3-year USD bonds with an annual interest rate of 8.3%.

In 2019, Zhengrong Real Estate ranked at the forefront of the country with 9 US dollar bonds. And this debt is already the fourth dollar bond issued by Zhengrong in 2020.

On June 10, Fujian-based developer Jinhui Group issued a $250 million, 3-year U.S. dollar bond on the SGX with a final coupon rate of 8.8%.

This is Jinhui Group’s third dollar debt in the past year and the lowest interest rate. In October 2019, a $250 million 2-year U.S. dollar bond with a coupon rate of 11.75%. In January 2020, a $300 million 2-year U.S. dollar bond was issued with a coupon rate of 10.5%.

On the same day, Minxi Rongxin China issued an announcement that it issued US$250 million in debt to refinance its existing debt, with a 2-year period of 7.35%.

On June 11, Min developer Baolong Real Estate issued an announcement to issue an additional US$250 million of 3-year U.S. dollar bonds to repay debts that are due to mature within one year at an annual interest rate of 6.95%.

This June, the radical Min real estate enterprise set off a wave of dollar debt. Borrowing debt to repay money, behind these not-so-low financing costs, reveals the developers' hot anxiety.

This chart shows the average interest rate on debt (red line), new issuance (red bar) and maturing debt (blue bar).

Even more debt is coming due:

A lot of debt this year? More debt is due in the next few years than this year!

The chart below shows the amount of foreign debt coming due each quarter.

The National Development and Reform Commission General Office Document No. 778 of 2009 stipulates that the issuance of foreign debt by real estate companies can only be used to replace mid- and long-term overseas debt due within the next year.

In 2021, the scale of US dollar debts pending for Chinese housing companies is higher than this year. Continue to borrow through 2021? The above-mentioned debts due in 2022 are already about to lift the scale of outstanding debt in 2022 to a higher level.