Economic review

Property firms make dash for overseas cash

2018-02-09 09:48:00 (Beijing Time)         Global Times

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Tighter local rules push developers into offshore debt markets

Cash-strapped Chinese real estate developers continued their overseas hunt for money in January, as tighter regulation at home made it harder and costlier to raise domestic funds, according to a report on Thursday.

But the trend might be derailed by further tightening of regulations at home, difficulty in raising funds overseas and exposure to exchange-rate risks, analysts said.

In January, domestic real estate developers raised more than $3 billion through issuing US dollar-denominated bonds and notes, surpassing the total of $2.1 billion raised through all channels, including domestic funds, in January 2017, real estate data provider Centaline Group said in a report sent to the Global Times on Thursday.

Major property companies that issued US dollar-denominated debt in January included Tahoe Group, which issued bonds worth $1 billion, and Country Garden Holdings, which issued senior notes worth $850 million, the report noted.

The surge in January followed a wave that started in the second half of 2017 of domestic developers rushing into overseas debt markets for much-needed cash. For all of 2017, domestic property companies raised a total of $38.86 billion overseas, jumping 176 percent from a year earlier, according to Centaline.

"Overall, real estate companies' overseas fundraising activities continue to speed up. The main reason for this trend is the increasing difficulty in raising funds domestically," the report noted, adding that capital access has been further tightened in China and funding costs have further increased.

Under a national focus on fighting systemic financial risks, Chinese authorities have tightened regulations on lending and on the overheated real estate market in recent months, which significantly limited funds available for real estate companies, analysts noted.

"Property companies, like any other big companies, always need cash to grow. With all the tight regulations, there weren't a whole lot of ways for domestic real estate companies to find the money they needed," Hui Jianqiang, research director with real estate information provider Beijing Zhongfangyanxie Technology Service, told the Global Times on Thursday.

Tight domestic funding conditions were exacerbated by strong demand for cash among domestic real estate companies, which experienced declining sales as a result of housing purchase curbs, according to Yan Yuejin, a research director at the Shanghai-based E-house China R&D Institute.

"With the real estate market cooling down, the problem for real estate companies' [cash flow] has gotten even worse," Yan told the Global Times.

Last year, at least 110 Chinese cities announced more than 270 curbs on housing transactions, which dealt a blow to sales in some cities, Zhang Dawei, chief analyst at Centaline, said in the report.

Zhang said that developers' financing pressures could worsen in 2018, as regulatory scrutiny could intensify in many cities and funding channels such as bond issues could get tighter.

"For real estate companies, 2018 could be the year with the biggest financing pressure in the past four years," Zhang said in the report, adding that overseas fundraising could also be affected by domestic conditions. "Against a backdrop of narrowing domestic funding channels, overseas fundraising activities could get more difficult."

Analysts also added that a cooling real estate market in China could dissuade overseas investors from putting money into developers, while fluctuation in the yuan's exchange rate against the US dollar could pose risks for the companies and their investors.