WHEN a bellwether Chinese property developer reportedly sought consumers for US$12bil (RM53bil) of property to repay debt this yr, the transfer sparked hopes of a liquidity increase for the nation’s embattled real estate companies.
But since January, solely about three of 34 property listed by Shimao Group Holdings Ltd – one of the largest issuers of greenback bonds within the sector – have been bought, in keeping with change filings.
While some of the luxurious builder’s prime property drew curiosity, consumers have develop into extra cautious about acquisitions in response to the deepening liquidity disaster, in keeping with an individual acquainted with the discussions.
That, together with the broader property slowdown, has led to a worth hole that’s typically not possible to bridge, this individual and one other individual acquainted with the market says. Both declined to be recognized discussing personal info.
The gradual progress underscores a wider pattern that alerts extra unhealthy information for collectors looking for to recuperate the billions they’re owed.
Since an preliminary flurry of deals in January, cautious consumers and reluctant sellers are struggling to conform to phrases, undermining China’s try and engineer a comfortable touchdown after years of debt-fuelled enlargement.
Mergers and acquisitions (M&A) by listed Chinese builders within the first quarter slumped to the bottom for the reason that pandemic started, information compiled by Bloomberg present.
The figures don’t seize transactions smaller than US$50mil (RM219mil) or these not publicly introduced.
Meanwhile, defaults have climbed to a file and the slowdown in housing gross sales continued in April, including to liquidity woes.
“I haven’t seen any developer successfully lifting itself out of distress through M&A,” Shen Chen, a accomplice at Shanghai Maoliang Investment Management LLP, who trades high-yield bonds, says.
“Buyers are slashing prices hard. Both sides refuse to budge.”
Chinese regulators see asset gross sales as a key step to easing the liquidity disaster and deal financing is one of the few concrete measures of help from Beijing, as President Xi Jinping’s authorities largely steers clear of direct bail-outs.
The People’s Bank of China lately held a gathering with about 20 main banks and asset-management companies looking for looser necessities on a spread of financing, together with lending for property acquisitions, folks acquainted with the matter stated final month.
Regulators in December eased limits on borrowing by main builders used to fund acquisitions.
As half of the push to generate cash for deals, builders and monetary establishments plan to boost not less than 217 billion yuan (RM144bil) by way of acquisition bond gross sales and credit score traces this yr, Bloomberg calculations primarily based on public bulletins present.
Still, the quantity to be generated stays small in contrast with the US$90bil (RM394bil) in native and offshore notes that builders have to repay or refinance this yr, in keeping with Bloomberg information.
So far, it’s unclear how a lot of the cash raised by M&A bonds will be used to purchase property.
State-owned China Merchants Shekou Industrial Zone Holdings Co – a comparatively secure builder of industrial parks whose yuan bonds commerce at par – says it deliberate to make use of 43% of its three billion yuan (RM1.97bil) M&A bond to refinance earlier deals.
The the rest will be used to pay down debt. Two-thirds of Shenzhen-based Overseas Chinese Town Enterprises Co’s 1.5 billion yuan (RM963mil) medium-term observe was used to exchange an earlier mortgage coming due.
“In the present environment, no property developer feels comfortable about its liquidity, so there is little appetite to use scarce capital to buy assets,” says Paul Lukaszewski, head of company debt for Asia Pacific at abrdn Plc in Singapore.
Some prime property have bought at deep reductions, decreasing incentives for builders with out rapid cost strain to promote. Holding out for a market rebound is likely to be extra favorable.
In January, Sunac China Holdings Ltd bought its stake in a mission in central Wuhan overlaying an space equal to 19 soccer fields to a unit of state-owned Beijing Capital Land Ltd at a 59% low cost, in keeping with folks acquainted with the matter. In late April, Guangzhou R&F Properties Co agreed to promote its stake in a property mission by the River Thames in London at a HK$1.84bil (RM1.02bil) loss.
Shimao, identified for its portfolio of five-star accommodations in prime places, in January bought Hyatt on the Bund within the centre of Shanghai for about 20% lower than the appraised worth, an individual acquainted says.
The earlier month, Shimao recognised a loss of HK$770mil (RM429mil) from offloading a stake in a Hong Kong residential mission to repay debt. Sunac and Shimao didn’t instantly reply to requests for remark.
Developers might promote at a reduction and even take a loss to get fast cash however this will pressure them to half with high quality tasks, in keeping with Tan Shengying, fixed-income analyst at HFT Investment Management.
“Selling assets could be considered costing the developer’s liquidity in the future,” Tan says.
More lately, consumers are prioritising their very own monetary safety by limiting deals to particular person property tasks, equivalent to joint ventures through which they already maintain a stake.
China Overseas Land & Investment Ltd, the second-largest state-owned builder by gross sales, acquired stakes in a Guangzhou mission from Agile Group Holdings Ltd and Shimao.
“It would be great news if state-owned firms stabilise private property companies by buying 20% to 30% of their shareholdings,” says Dhiraj Bajaj, head of Asia credit score at Lombard Odier. — Bloomberg
