(Yicai) Feb. 11 — Financing efforts among real estate enterprises have increased, but improvements are still erratic, and costs remain high, according to industry insiders.
Most property developers that manage to secure financing are either state-owned enterprises with stable cash flow and strong shareholder support or private firms with operating assets, Song Hongwei, research director at Tospur Real Estate Consulting, told Yicai. The funds are mainly used for reinvestment in projects under construction or for debt repayment to avoid defaults.
Since the beginning of the year, real estate companies have intensified their efforts to secure funds through diverse methods, including rights issues and private placements for listed firms, and high-interest overseas bonds for private enterprises.
For example, state-owned Huafa Properties announced on Feb. 6 that it will carry out a private placement to raise up to CNY3 billion (USD434 million) to fund the construction of multiple residential projects. The issuance price will be no lower than 80 percent of the average trading price over the 20 trading days before the issuance.
Seazen Group said on Feb. 5 that it plans to issue 198 million shares at HKD2.39 (30 US cents) apiece — a 15 percent discount to its closing price the previous day — to raise a total of HKD469 million (USD60 million), with the proceeds to be used for the firm’s future development, repayment of maturing debts, and general working capital purposes.
Dalian Wanda Commercial Management Group issued a USD360 million US dollar-denominated bond with a coupon rate of 12.75 percent on Jan. 30, marking the company’s return to the offshore bond market after a three-year halt. The money was partly used to repurchase existing bonds.
Song believes that Dalian Wanda’s issuance of a US dollar bond with a 12.75 percent coupon interest rate — far exceeding the average of 4.33 percent of US dollar bonds issued by Chinese property firms last year — represents an extreme compensation for a credit discount. This move likely attracted high-risk capital rather than mainstream long-term investors, he noted.
The overall financing environment of the Chinese real estate industry still awaits more solid improvements. The total financing volume of China’s 65 mainstream real estate enterprises was CNY24.1 billion (USD3.5 billion) last December, bringing the annual total to a historically low level of CNY414.3 billion (USD59.9 billion), according to data from China Real Estate Information Corporation.
The real estate sector is still in a stage of deep adjustments, said Liu Shui, director of corporate research at the China Index Academy. Financial institutions have a strong risk-averse sentiment and remain very cautious about real estate investments, making it difficult for the financing environment to undergo significant changes in the short term, he explained.
Editor: Futura Costaglione