More bond defaults likely for Chinese real estate companies, but overall situation will be stable

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Cranes are seen at a construction site for a building complex in Beijing. Photo: VCG

A few Chinese real estate developers are likely to default on their bonds, including bonds denominated in US dollars, by the end of the year due to the difficult market environment, but the overall impact of such cases will be limited, analysts and industry insiders said. Tuesday.

The comments came after Modern Land (China) Co failed to pay a $ 250 million tranche of bonds owed on Monday, and Chinese regulatory authorities began to resolve the issue. It also came after the debt issue of Chinese real estate giant Evergrande made global headlines.

The default brought the number of defaults on dollar-denominated bonds by Chinese real estate companies to nine this year, financial news portal yicai.com reported, citing a report from Industrial Securities.

The Shanghai branch of the State Administration of Foreign Exchange is asking real estate developers who have issued bonds overseas to report their status of bonds due this year by Wednesday as part of a payback operation.

Chinese industry experts have said that as the growth rate of the real estate sector is declining, real estate companies are facing growing financing problems.

In this context, the most aggressive developers and those who venture into different industries face increasing financial risks to repay bonds on time.

According to a Securities Daily report, 21 of 41 real estate companies listed on China’s A-share market said on Monday that they would post a decline in their net profits for the third quarter of 2021.

Hui Jianqiang, research director at China Real Estate Appraisal, a real estate information provider, told the Global Times on Tuesday that the central government’s requirement that developers reduce the amount of their debts, combined with a drop in home sales, means that more defaults are likely.

But he noted that such incidents will be isolated and the overall image of the industry remains strong.

Hui believed that the importance of the real estate sector was still appreciated by key policy makers, and that there had been “warm breezes” lately.

More and more Chinese real estate companies reported their third quarter results this week, showing a drop in their overall debt levels.

Greenland Holdings Corp said outstanding interest-bearing debt stood at 257.3 billion yuan ($ 40.33 billion) at the end of September, down 130.9 billion yuan from August 2020. .

Chinese real estate companies face a record amount of bonds maturing in 2021 at 1.28 trillion yuan, according to a report by news portal jiemian.com. The value of bonds due will decline after 2021, the report notes.

This came as the state-run Xinhua News Agency published an article highlighting China’s current economic situation, noting that although there are individual problems in the real estate market, the risks are generally under control, citing authoritative sources.

The article notes that the country has made “great strides” in preventing and defusing major financial risks. The demand for reasonable capital from real estate developers is satisfied and the overall trend for healthy development in the real estate market will not change.

According to domestic news portal 21jingji.com, China’s top 50 real estate companies posted relatively resilient performance.

Thirty companies are classified as having a “very strong or relatively strong” performance, and 20 companies have normal risk resilience. However, these companies represent only the elite of Chinese real estate companies, as the industry has more than 90,000 companies.

There are still concerns about defaults on dollar-denominated bonds, but analysts also noted that there was no need to hype the issue, as the foreign investors who bought these bonds knew the risks.

Chinese companies’ overseas bond defaults reached their highest level since record breaking in 2018, Bloomberg reported on Tuesday. Defaults reached $ 8.7 billion, with real estate company bonds accounting for 34% of total defaults.

Although defaults in foreign markets are believed to cause more damage to a company’s reputation than a domestic default, industry insiders have said that many of these bonds are classified as junk bonds. abroad.

Chen Da, chief advisor to Shanghai-based HHSC Capital, told the Global Times on Tuesday that seasoned investors who have purchased bonds issued by Chinese real estate companies are in the game for high yields and are aware of the high risks of these obligations.

Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute, told the Global Times on Tuesday that while China has avoided systemic financial risks, the defaults of some real estate developers deserve the preventive attention of policymakers.


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