Debt-Ridden Developers Find Relief in Increased Bond Sales in China

Admin 03/February/2023 02:02

Key Takeaways
  • The increase in bond sales is attributed to the efforts of the Chinese government to support the hard-hit real estate sector.
  • The sector had experienced a slump due to the impact of the pandemic and high debt levels
  • A report from China Real Estate Information showed that 100 residential developers collected bond sales of around $15 billion in December 2022
  • Approximately $570 billion has been pledged to support the struggling sector 

Real estate sector is considered, which has struggled for over two years, to be a vital pillar in boosting China’s economic growth. Real estate and the related sector accounts for nearly 30 percent of the country’s GDP

Indebted Chinese high-profile property developer bonds have seen a sharp increase, showing the fruition of the Chinese government’s effort to bolster the hard-hit sector.

The sector was in a slump after experiencing the pandemic headwind, which dragged a lot of property investors into debt. Evergrande, for an instant, found itself in $300 billion debt. However, during the past few months late last year, the indebted developers saw their bond sales spike and urge a drastic recovery of almost 50 percent. This is largely due to the government’s all-around effort to bolster the once red-hot sector, gaining back market confidence and attracting the return of foreign investors.

A report conducted by China Real Estate Information recently cited by the Chinese media outlet, Caxin showed that about 100 residential developers collected around $15 billion in bond sales in December 2022. It highlights an increase of over 80 percent compared to the previous month, and a 30 percent increase compared to 2021. Most of that was raised in the domestic bond market, which accounted for $12 billion of the total.

What is a bond? Why Chinese developers gathered investment funds by issuing bonds?

Bonds are debt instruments that represent loans made by the issuer. Developers or companies commonly issue bonds to borrow money and fund projects or other investments. The investor who bought the bond would receive a fixed income or interest rate based on the agreement between the issuer and the investor by the maturity date. For instance, the median yield on AAA-rated property bonds maturing in three years is estimated at 2.6% per annum.

According to Caixin, developers will have to repay debts of about $141 billion by the end of 2023, which is $10 billion higher than in 2022. Liu He, vice-premier of the People of the Republic of China considers the real estate sector, which has struggled for over two years, to be a vital pillar in boosting economic growth. The factors that put this sector in a slump were a decrease in sales and the government’s new policies called ‘’three red lines,’’ which impose caps on property developers.

Between January 2021 to October 2022, about 66 companies missed their debt payment deadlines, with an accumulation of $162 billion. On top of that, a total housing sale from 100 companies across the country, estimated to be around $1,000 billion in 2022, represents a 40-percent tumble compared to 2021.

However, over the past months, the government has implemented different measures, including the 16-point, to pledge credit support for indebted developers and revitalize the distressed real estate sector. Approximately $570B has been pledged to support the struggling sectors.

English article is written by Kem Sreyneth. Click here to read this article in Khmer


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