* Property groups get creative as Beijing tightens access to
By Carol Chan
HONG KONG, May 8 (IFR) - Chinese property developers are on
the hunt for onshore or offshore funding alternatives in
anticipation of further government measures to rein in soaring
"We don't expect any policy loosening this year. The
operating environment will become more challenging, especially
for small players. Only those with financial strength can
survive the downturn," said Derek Zen, an executive director at
property developer Road King Infrastructure.
The latest drive to tame the property market began last
September. Since then, more than 45 cities have introduced
home-purchase restrictions in the form of larger down-payment
requirements and higher mortgage rates, as well as restrictions
on non-local and second-home buyers.
Authorities have also tightened requirements for bond issues
and barred access to the banking system for developers buying
The effective closure since last October of the
stock-exchange bond markets in Shanghai and Shenzhen is forcing
many developers to raise funds offshore in the form of US dollar
bonds or syndicated loans.
Some developers are even diversifying into Hong Kong
property projects. For instance, Road King has re-entered the
Hong Kong market after several years of absence, in part because
of the restrictions in China.
Other Chinese companies, including HNA Group, KWG Property
Holding and Logan Property Holdings, have
recently won bids for high-profile residential projects in Hong
"We want to have more balanced businesses between mainland
China and Hong Kong," said Zen. Road King, which is in the
process of spinning off its expressway segment, also issued two
US dollar bonds totalling $950 million in the second half of
2016 and $300 million perpetual notes in February.
While some developers are looking offshore, others are seeking
onshore alternatives, such as asset-backed notes and medium-term
notes issued on the interbank bond market.
Shimao Property Holdings announced on April 26
that mainland subsidiary Shanghai Shimao International Plaza had
received a quota to issue within two years ABNs of up to 6.5
billion yuan ($943 million) in the interbank bond market. The
securities will be backed against income of the subsidiary's
The proposed ABN public offering, if it comes to fruition,
will be the first ABN backed against commercial properties in
the interbank bond market, according to Eva Lau, an investor
relations manager at Shimao.
Developers, especially those listed in Hong Kong, have taken
full advantage of the onshore bond market since the exchange
market relaxed regulations on corporate bond issues in 2015.
Country Garden and Agile Group Holdings also
sold asset-backed securities last year, but those were issued in
the exchanges market via private placement.
With the exchange market effectively closed, developers are
now forced to look elsewhere.
"We need to explore new funding alternatives after the
closures of the domestic exchanges bond market," said Lau. "Our
business model, with both residential development and commercial
properties, gives us advantages to issue ABNs as we have
recurring income from commercial properties."
Shimao is also applying to issue Panda MTNs in the interbank
bond market, after recent successful issues from peers
Sino-Ocean Group Holding and China Jinmao Holdings Group.
In the offshore market, Shimao is in talk with banks to
raise a new $500-$800 million four-year syndicated loan, and
could sign a formal agreement in June, according to Lau.
Despite repeated efforts to cool down the housing market,
average new home prices in China's 70 major cities rose 0.6
percent in March from February, faster than the previous month's
reading of 0.3 percent, according to Reuters calculations based
on data from the National Bureau of Statistics.
Ross Lee, an analyst at Bank of China (Hong Kong), expects
the policy tightening to continue.
"We view the current policy tightening to be city-focused,
targeting the ASP (average selling price) growth instead of a
nationwide tightening," said Lee. The analyst believes
destocking in lower-tier cities will be supported, while more
policy tightening will take place in tier-one, high tier-two and
satellite cities where prices are high.
Franco Leung, a Moody's senior credit officer, expects
liquidity for developers will likely tighten gradually,
reflecting slowing sales and the dramatic slowdown seen in
onshore bond issuance in recent months.
Nevertheless, many Moody's-rated developers continued to
target high sales growth in 2017 to capture additional market
share, meaning that competition would intensify, Leung said.
Moody's also noted that developers' refinancing needs for
onshore bonds would increase significantly next year, because
many of these bonds would become puttable or due in 2018.
Still, the refinancing risk for most developers it rated
"should be manageable", given their robust liquidity buffers,
the rating agency said.
(Reporting by Carol Chan; Editing by Daniel Stanton and Vincent