Embattled developers in China scramble to raise $3.3b

HONG KONG • The scramble for cash by Chinese property companies is intensifying as the industry seeks ways to alleviate a historic liquidity squeeze.

Firms announced plans to raise US$2.4 billion (S$3.25 billion) in just the past 24 hours, taking the total over the last week to at least US$4.2 billion, according to Bloomberg calculations.

The latest fund-raising includes China Evergrande Group's stake divestment in HengTen Networks Group and Country Garden Services Holdings' second share placement in six months, as well as onshore bond sales by two state-run developers.

Property firms are stepping up efforts to raise cash as they try to repay debt at a time when strict rules on leverage, elevated borrowing costs and a slowdown in homes sales are curbing traditional fund sources. Chinese policymakers have made it clear they expect developers to meet their obligations, even as curbs on the sector remain.

"Many developers are doing everything they can to avert default," said Hong Kong Asset Management's portfolio manager Abhishek Rawat. "That's a good sign as it implies they care about their reputation. It shows their willingness to pay."

The rash of deals comes as developers face a wall of maturing dollar and local bonds at the beginning of next year. The builders have a total of US$13.4 billion of US dollar bonds and the equivalent of US$12.6 billion in yuan notes coming due in the first quarter, according to data compiled by Bloomberg. The average cost of refinancing such debt via dollar bond issuance remains prohibitively expensive with yields around 20 per cent.

The Chinese authorities, who have long put a premium on financial stability, told real estate firms at a meeting on Oct 26 that they need to meet all their debt obligations. No developer has defaulted on dollar debt since, after at least four failed to repay offshore obligations earlier that month.

But despite the panic among bondholders, the authorities have been reluctant to provide financial assistance. That is because of Beijing's determination to reduce moral hazard in markets, punishing creditors who in the past ignored risks or assumed over-extended firms would always be bailed out.

Some of the deals announced yesterday are:

Evergrande said it agreed to sell its entire 18 per cent stake in Internet services firm HengTen for US$273 million, the latest asset disposal by the debt-stricken property giant. The sale represents a discount of about 24 per cent to HengTen's close on Wednesday. Evergrande said it expects a loss of about US$1.1 billion from the sale.

Country Garden Services is looking to raise HK$8 billion (S$1.4 billion) by selling new shares at HK$53.35 each, a 9.5 per cent discount to Wednesday's closing price.

Agile Group Holdings will raise US$311 million through the sale of bonds exchangeable into shares of A-Living Smart City Services, it said.

Poly Developments and Holdings Group sold two billion yuan (S$425 million) of five-year bonds at 3.55 per cent, according to a statement on Chinamoney.com.cn.

Merchants Shekou Industrial Zone Holdings sold three billion yuan of 270-day bonds at 2.84 per cent.

BLOOMBERG

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A version of this article appeared in the print edition of The Straits Times on November 19, 2021, with the headline Embattled developers in China scramble to raise $3.3b. Subscribe