Investors lap up Chinese property developers' bonds

BEIJING • US dollar bonds sold by China's property developers are being lapped up by investors, drawn by the companies' stronger earnings and improving credit profiles.

Notes sold in July and last month by Chinese developers attracted orders 6.3 times the issue size, compared with 2.5 times in May and June, according to data compiled by Bloomberg where deal statistics are available. The firms are taking advantage of the better sentiment, with bond sales rising to a record US$35.2 billion (S$47.8 billion) this year.

"In China, we still like the property sector," said Mr Ken Hu, chief investment officer for Asia-Pacific fixed income at Invesco Hong Kong. Property companies' sales and cash flows are pretty strong and their inventory levels have been improving, he said.

The revitalisation of the Chinese property bond market, which has a track record of debentures and regulator scrutiny, has helped drive Asian high-yield issuance to a peak of US$39 billion this year, with developer debt about 60 per cent of that total. It's also buoying the wider dollar bond market, with issuers in Asia excluding Japan selling a record US$193.6 billion of dollar notes so far this year, an 80 per cent jump from the same period last year.

Ten leading developers that have reported first-half results saw gross margins expand to an average 30.2 per cent, according to calculations based on earnings reports.

Six of the 10 developers have raised sales targets this earnings season, signalling ever-growing demand from buyers. Moody's Investors Service said last Thursday it sees the number of negative outlooks in the sector declining slightly over the next six to 12 months.

But while the bonds are finding favour with investors, the sector is still not devoid of risk, as the experience of Wanda Properties International shows.

The firm's US$600 million of notes due 2024 dropped by more than three cents on the dollar on Aug 28 after Chinese media reported that the billionaire chairman of its parent company, Mr Wang Jianlin, was stopped with his family at Tianjin airport near Beijing as they were about to depart for London. Dalian Wanda Group later refuted the story, helping the bonds recover losses.

And at the end of June, Greenland Holdings, China's fourth-biggest developer by property sales, said it had overdue loans of 457.5 million yuan (S$95 million) in some units in Liaoning province.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 05, 2017, with the headline 'Investors lap up Chinese property developers' bonds'. Print Edition | Subscribe