Embattled China developers rush to raise $3 billion in a day

Evergrande has been stumbling from deadline to deadline in recent weeks as it grapples with more than US$300 billion in liabilities. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - The scramble for cash by Chinese property companies is intensifying as the industry looks for 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 fundraising 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 seek to repay debt at a time when strict rules on leverage, elevated borrowing costs and a slowdown in homes sales are curbing traditional sources of funds. Chinese policy makers have made it clear they expect developers to meet their obligations, even as officials maintain curbs on the sector.

"Many developers are doing everything they can to avert default," said Abhishek Rawat, portfolio manager at Hong Kong Asset Management. "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 2022. 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.

Chinese authorities, who have long put a premium on financial stability, told real estate firms at a meeting Oct 26 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, authorities have been reluctant to provide financial assistance. That's because of Beijing's determination to reduce moral hazard in markets, punishing creditors who in the past ignored risks or assumed overextended companies would always be bailed out.

The following are details of the deals announced in the past day:

Evergrande on Thursday (Nov 18) 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 to incur 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) selling new shares at HKUS$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 on Thursday.

Poly Developments and Holdings Group sold 2 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 3 billion yuan of 270-day bonds at 2.84 per cent.

Last week Sunac China Holdings raised about US$953 million through the sale of new shares as well as a stake in its property management unit. Sun Hongbin, the controlling shareholder of Sunac and the chairman of the board, also provided US$450 million of his own funds in the form of an interest-free loan.

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