Developers Double Sales as Xi Allows Property Boom: China Credit

Chinese developers’ sales of dollar bonds more than doubled this year, reflecting confidence the government will tolerate a sustained property boom as home prices climb at the fastest pace since January 2011.

The companies sold $17.88 billion of the notes as of Oct. 20, up from about $8 billion for the whole of 2012, according to a report by Moody’s Investors Service. The average yield on Chinese issuers’ dollar debt was 4.42 percent in 2013, less than the 5.51 percent in the previous five years, the HSBC Asian US Dollar Bond Index shows. That compares with an average of 6.03 percent for yuan-denominated corporate bonds included in the Bank of America Merrill Lynch China Corporate Index.

Billionaire Hui Ka Yan’s Evergrande Real Estate Group Ltd., China’s biggest homebuilder by sales, was among issuers this month as the Federal Reserve considers cutting stimulus that drove down U.S. borrowing costs. Appetite is being backed by Moody’s rating upgrades and data showing housing prices in the four biggest cities climbed by at least 16 percent in September. President Xi Jinping refrained from criticizing the rally in Oct. 29 comments on housing policy before a four-day Communist Party leadership meeting which ends today.

“Going into November and December, we expect fundraising activities by rated developers to continue,” Kaven Tsang, a Hong Kong-based senior analyst at Moody’s, said in a Nov. 6 phone interview. “Contracted sales improved, as reflected in their interim results, so bond investors have become more interested.”

Sales Jump

China Vanke Co., the nation’s biggest listed developer by market value, said in a Nov. 4 filing that sales in the first 10 months of this year totaled 145.85 billion yuan ($24 billion), exceeding its 2012 full-year revenue of 141.2 billion yuan. Evergrande’s contract sales in the January-October period climbed 25 percent to 91.3 billion yuan.

Evergrande, rated B1 by Moody’s, issued $500 million of bonds at 8.75 percent due 2018 on Nov. 6 to refinance existing debt, after selling $1 billion of five-year securities at the same rate on Oct. 30. Greenland Hong Kong Holdings Ltd. last month sold $700 million of notes due 2016 at 4.75 percent to refinance current borrowings and fund projects.

Greenland was one of seven property firms which received an upgrade from Moody’s this year. That compares with four in 2012 and is the most since at least 2008.

Cheaper Rates

China has restricted developers from issuing domestic bonds since 2010 as part of efforts to curb property price gains, while the central bank reported a measure of new onshore credit yesterday that fell short of estimates. At least $21 billion of notes and loans are estimated to mature before the end of 2014, data compiled by Bloomberg show.

“It’s difficult to get government approval for selling local bonds, except for affordable home projects,” said Dai Fang, a property analyst at Zheshang Securities Co. in Shanghai. The cost of issuing dollar bonds is also often cheaper than yuan loans, he added.

A gauge of investments in China’s residential property development and land purchases rose 18.9 percent in the first 10 months of 2013 to 4.72 trillion yuan, according to data from the statistics bureau, from 10.8 percent growth a year earlier. Residential land supply in Beijing, Shanghai, Guangzhou and Shenzhen have been either close to or exceeded the five-year average in the first three quarters of 2013, according to a statement on the Ministry of Land and Resources website.

Vanke bought 3.4 million square meters (37 million square feet) of land in the first half of 2013, almost five times the amount it purchased a year earlier, according to company filings. The average cost of land for new projects jumped 23 percent.

Party Plenum

“It’s a good time to buy land,” said Dai at Zheshang. “If policies coming from the third Communist Party plenum are positive to the property market, then they’ve got the land reserves at hand. If it’s the opposite, then they’ve improved their financial status.”

The Plenary Session will usher in “unprecedented” economic reforms, Yu Zhengsheng, who ranks fourth in the seven-member Politburo Standing Committee, said last month. The official Xinhua News Agency said Nov. 4 the meeting would be a watershed as drastic economic policies will be unveiled, including giving more scope to market forces.

President Xi, in a study session of the decision-making Politburo in October, talked about a system under which the government would cover basic social housing while “multiple levels” of other accommodation needs are met mainly by the market. The remarks, which had no mention of curbing home prices, sent developers’ stocks soaring by the most in more than a month.

Two Tiers

“The government has a clear mindset about a ‘two-tier’ property market - private and public, with social housing having priority but with a growing segment being more market-oriented and supply-focused,” Oscar Choi and Marco Sze, analysts with Citigroup Inc., wrote in a Nov. 5 report. “Investor sentiment should improve on continuing evidence that the government is committed to a stable property sector as a key plank in its growth-driven policy reforms.”

China’s gross domestic product expanded 7.8 percent in the three months through September, after a two-quarter slowdown, as Premier Li Keqiang looks to restructure the economy to cut its dependence on exports. The yield on 10-year sovereign bonds climbed 41 basis points since the end of September to 4.41 percent yesterday, the highest since 2008. The rate on similar-maturity U.S. Treasuries rose 14 basis points to 2.75 percent. The yuan, which has gained 2.3 percent this year, was little changed at 6.0918 per dollar in Shanghai today.

New Credit

China’s broadest measure of new credit fell by more than estimated in October, suggesting authorities are trying to keep shadow-finance risks in check. Aggregate financing was 856.4 billion yuan, the People’s Bank of China said yesterday in Beijing, below all nine projections in a Bloomberg News survey. New local-currency loans of 506.1 billion yuan compared with the 580 billion yuan median estimate of analysts. M2, the broadest measure of money supply, rose 14.3 percent from a year earlier.

New home prices excluding government-sponsored social housing jumped 21 percent in Beijing in September from a year earlier, as the national government refrained from introducing more property curbs that would hinder economic growth. The Chinese capital raised down payments for second homes to 70 percent in March, while Shanghai did the same this month.

“If there’re any policies at the plenum, it’s more likely to be on the supply side, such as increasing new home supplies,” said Moody’s Tsang. “This is positive, looking at the long-term developments, as it will help control the current surge.”

— With assistance by Helen Sun

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