China property bonds flying, but risks lurk
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China's developers have been aggressively issuing U.S. dollar bonds this year, with the pace likely to quicken as they take advantage of low funding costs overseas and in anticipation of tighter monetary policy at home.
However, an oversupply in the bonds market and mounting debt problems in Greece could sap investor appetite in the near term, meaning that Chinese developers would have to price their bonds with a higher coupon rate, industry executives said.
So far, Chinese developers, such as Country Garden (2007.HK) and Evergrande (3333.HK), have sold $2.3 billion U.S. dollar bonds so far this year, more than tripling from last year's $668.4 million, according to Thomson Reuters data.
More of such bond issues by Chinese developers are likely to happen over the next few months, and issues could total around $5 billion in the first half of this year, though they are watching how Greece's debt crisis evolves in the very short term.
Already, Chinese developers, such as Renhe Commercial Holdings (1387.HK) and Fantasia Holdings (1777.HK), are planning on issues, which comes at a time when Beijing is setting restrictions on capital raising at home.
Industry sources say Powerlong Real Estate (1238.HK) is also considering issuing U.S. dollar bonds.
"The impact of lower risk appetite due to the Greek contagion will have more negative impact on the high yield space," said Desmond Soon, head of fixed income at DBS Asset Management in Singapore.
A banker who declined to be identified said Chinese developers would have to be ready to pay higher premium if they were to issue now or wait for a window of stability before going ahead with their plans.
Of the four Chinese property firms that have sold dollar bonds so far this year, three issued the debt at par while Country Garden was under par.
