Xinyuan to Seek Fund Investors as China Curbs Developer Loans

Xinyuan Real Estate Co., a Chinese developer that sells apartments to middle-income consumers, plans to seek investors to help finance land purchases as bank lending curbs limit funding for smaller property companies.

Beijing-based Xinyuan, which builds homes in cities including Suzhou and Chengdu, may approach state companies and private equity firms to seed a captive fund, Chief Financial Officer Thomas Gurnee said in an interview.

Buying new land has “become more difficult with recent policy changes,” Gurnee said. “Construction lending is the most attractive option to us, but we can only borrow against projects we already own.”

China imposed limits on bank lending and raised interest rates twice since October to slow inflation that reached a 28- month high in November, threatening expansion in the fastest- growing major economy. Though the government suspended mortgages for third-home purchases to try to cool property demand, real estate prices rose for a 19th month in December.

While banks will still lend developers as much as 70 percent of the value of their assets, they stopped allowing companies to use money borrowed against existing projects for new land purchases last year, according to Gurnee.

“The government restrictions are working, making it difficult for us,” he said. ‘Low’ equity prices make share sales an unattractive means of financing, Xinyuan is ‘too small’ to get approval to issue yuan-denominated bonds, and bond sales in dollars are too expensive, he said.

Share Slump

Xinyuan’s American depositary receipts fell 7.6 percent to $2.43 in New York this year and have lost 40 percent of their value in the past year, according to data compiled by Bloomberg.

The company may follow Fosun Group and developer China Overseas Land & Investment Ltd. in turning to private investors as an alternative to loans, bond or share sales. A group led by Shanghai-based Fosun, a unit of Fosun International Ltd., has raised about 5 billion yuan ($759 million) since September through a private equity fund to invest in property, the company confirmed Jan. 25. China Overseas said last year it would set up a fund of as much as $500 million to finance projects.

“There will be very stringent requirements around lending to developers. Many of them won’t get funding this year,” Chris Brooke, Beijing-based president and chief executive officer for Asia of CB Richard Ellis Group Inc., told Bloomberg Television on Jan. 21.

“The broader plan is to convert some of that bank lending liquidity into more institutional capital from the insurance companies, some of the bigger trust companies and some of the bigger state-owned financial organizations.”

- Henry Sanderson. Editors: Hugh Chow, Will McSheehy

To contact Bloomberg News staff on this story: Henry Sanderson in Beijing at 86-10-6649-7548 or hsanderson@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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