China Debt Market Hurdles `Not Insurmountable,' Goodman Says

  • Australia’s top industrial REIT open to future China bond sale
  • China’s $10 trillion market could become future funding source

Australia’s largest industrial real estate investment trust is open to selling bonds in China in the future, as regulators of the Asian nation’s $10 trillion debt market seek to entice foreign investors.

Goodman Group, which counts e-commerce giant Amazon.com Inc. as its top customer worldwide, may consider selling yuan-denominated notes as the world’s third-largest debt market matures, according to Chief Financial Officer Nick Vrondas. While the Sydney-based company has been slashing debt and reinvesting proceeds of property sales into new developments in recent years, it remains on the lookout for investors keen to meet Goodman’s future financing needs, he said.

China’s onshore bond market remains ripe with regulatory challenges including managing capital flow in and out of the nation, although these hurdles are “not insurmountable,” he said. “When they’ve proven to be able to operate through thick and thin, that gives me a lot of confidence” China could become “another viable funding source for us,” Vrondas said. “The main game is that there is a strong and robust sustainable market.”

Vrondas’ remarks come after China’s bond connect opening in July helped boost sales of so-called Panda notes, or yuan-denominated debt by overseas issuers. Still, many foreigners remain hesitant to flood the market after past actions such as government intervention to prop up the domestic equities sector in 2015. Offshore investors hold less than 2 percent of onshore Chinese bonds, June data from the People’s Bank of China show.

Goodman Group, which manages warehouses and logistic centers from Sydney to Shanghai, is banking on e-commerce and consumer demand for speedy deliveries to drive its global expansion. The real estate group sees opportunities to invest in major cities such as Los Angeles, Sydney, Hong Kong, London and Paris, according to Vrondas. 

“At the moment the biggest challenge is actually putting money to work” as Goodman seeks assets that are not overpriced, Vrondas said. The company, which has cut gearing levels to 5.9 percent from its previous 25 to 35 percent target, is focused on selling non-core properties and reinvesting capital into developing logistics facilities, he said.

Goodman Group, the biggest Australian REIT by market value after Scentre Group and Westfield Corp., had A$34.6 billion in total assets under management as of June 30.

Here are Vrondas’ views on debt funding markets:

  • Goodman favors public and private dollar bond markets in the U.S. for tenor, diversity and depth of investor pool
  • Euro and sterling-denominated notes also provide a “natural hedge” for currency exposure of the group’s European assets

On the Federal Reserve’s plans to start selling mortgage bonds and knock-on effects to bond markets:

  • Selloff could affect appetite for real estate bonds globally, Vrondas says
  • “It could roll out to consume capacity.”
  • More sophisticated investors however would recognize mortgage bonds are a different asset to industrial properties such as “a warehouse in Sydney”
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE