© Reuters. FILE PHOTO: Unfinished house buildings stand at a residential complicated developed by Jiadengbao Actual Property in Guilin, Guangxi Zhuang Autonomous Area, China September 17, 2022. REUTERS/Eduardo Baptista/File Picture
By Davide Barbuscia, Samuel Shen and Xie Yu
NEW YORK/SHANGHAI/HONG KONG (Reuters) – Some offshore bondholders are scouting for bargains in China’s cash-squeezed property sector after a slew of funding assist measures adopted a brutal slide, however the unsure outlook for a restoration in residence demand will preserve others on the sidelines.
Beijing has stepped up assist in latest weeks to release a liquidity squeeze that has stifled the business, which accounts for 1 / 4 of the world’s second largest economic system and has been a key driver of development.
Overseas traders’ return to the sector is shaping as a key take a look at of sentiment after many builders defaulted on debt obligations over the previous yr, within the wake of Beijing’s vigorous crackdown on debt-fuelled growth.
Mark Dong, co-founder and normal supervisor of Minority Asset Administration in Hong Kong, mentioned his fund had been discount searching Chinese language property greenback bonds since September, in a guess that the market sell-off was overdone.
“The fairness refinancing coverage has made clear that almost all listed builders will get authorities assist,” mentioned Dong, whose agency holds such bonds to the face worth of roughly $400 million.
“Uncertainty has been drastically lowered.”
The remark adopted a transfer this week by securities regulators to carry a years-long ban on fairness choices by listed property corporations looking for to lift funds. That in flip prompted three builders to unveil fundraising plans.
An index monitoring high-yield greenback bonds of Chinese language builders has jumped greater than 70% from its Nov. 3 low, however remains to be down about 70% from its peak in Could, 2021.
Graphic: China property shares and bonds https://fingfx.thomsonreuters.com/gfx/mkt/gdvzqyezxpw/Chinesepercent20propertypercent20sharespercent20andpercent20bonds.png
Regardless of the latest worth leap, Dong mentioned, “It is not too late to purchase,” because the market temper has not totally recovered.
A rising checklist of Chinese language builders have entered into or are getting ready to kick-off debt restructuring talks with offshore bondholders after defaulting on funds.
For instance, China Evergrande Group, which is on the centre of the property disaster, goals to win collectors’ approval for a plan to restructure offshore debt value $22.7 billion by as quickly as the tip of February.
The awful sector outlook, with falling residence gross sales and fewer sources of elevating contemporary funding for developments, has raised the prospect of an enormous haircut for offshore bondholders.
“We’ve turned barely much less unfavourable, however imagine solely a handful of personal Chinese language actual property corporations will survive with out having to restructure,” mentioned Max Wolman, senior portfolio supervisor at abrdn, which owns such bonds, however is underweight on the sector.
DEMAND OUTLOOK
Fund managers have been chopping their holdings in Chinese language property bonds by half or much more this yr because the sector lurched from disaster to disaster and blew a deep gap in asset managers’ efficiency.
Of 241 dollar-denominated bonds issued by Chinese language property corporations, 211 are buying and selling in distressed territory beneath 50 cents on the greenback, Refinitiv information exhibits.
Graphic: China’s property misery China’s property misery https://www.reuters.com/graphics/CHINA-PROPERTY/DEBT-BONDHOLDERS/lgvdkwbmnpo/chart.png
The latest rally in builders’ shares and bonds on the again of funding assist measures, nonetheless, has given traders some respite. In November, Hong Kong’s Mainland Properties Index posted a report month-to-month achieve of 70%.
But issues swirl about how lengthy the rally will final, in addition to if traders will return to the debt market within the absence of a rebound in residence demand, with October seeing a fifteenth straight month-to-month fall in property gross sales, measured by ground space.
“There’s a outstanding flip of property insurance policies, however corporations can not get again onto their ft with out bringing again gross sales,” mentioned Li Gen, chief govt of Beijing-based BG Capital Administration Ltd, which specialises in credit score funding.
Some traders are betting on China’s easing of prolonged COVID-19 curbs, following nationwide protests towards the world’s hardest measures, to carry a revival in residence gross sales.
“A restoration in property gross sales can be firmer in a re-opening situation,” mentioned Justin Ong of Columbia Threadneedle, which holds China property bonds, as it will supply a clearer timeline for re-opening.
