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Business, Economy

Chinese developers turn to offshore markets to meet their financing needs

Jun 20, 2019 (China Knowledge) – Tight credit-conditions in China are leading Chinese property developers to sell more US dollar bonds overseas at up to double the cost of borrowing domestically.

This month, 18 Chinese real estate companies have issued bonds, with 11 of them selling bonds overseas with a total estimated issuance of more than USD 3 billion, compared to just two offshore bond offerings by domestic developers last month.

Many Chinese developers are now facing financial strains after multiple tightening policies introduced by the government in a bid to cool surging property prices and financial risk.

Last month the China Banking and Insurance Regulatory Commission (CBIRC) banned direct financing to developers with incomplete certificates or real estate projects with capital not fully in place. The regulator also banned indirect financing through equity investments and bond subscriptions to those developers.

As a result, many property developers have turned to overseas markets to meet their financing requirements even despite the higher costs of borrowing. Last week, Jiangsu Zhongnan Construction Group Co. issued USD 350 million worth of offshore bonds at a coupon rate of 10.875% while China South City Holdings sold USD 60 million of US dollar senior notes at a rate of 11.875%.

In comparison, onshore borrowing costs were typically less than 5%. The increased cost of borrowing overseas is due to increases in US interest rate and higher related fees for issuance of offshore bonds.

However, for developers, being able to raise funds to maintain their growth is their top priority and foreign debt issuance by developers and financing costs will likely continue to increase.

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