To The Moon

BEIJING, November 8 (TMTPost) – The financing scale of Chinese real estate companies continued to decline in October.

According to data released by the China Index Academy (CIA) on Monday, the total amount of bond financing for real estate companies in October was 27.64 billion yuan, a year-on-year decrease of 46.2% and a month-on-month decrease of 19.5%. The total bond financing for real estate companies in the first ten months of 2023 was 587.51 billion yuan, a year-on-year decrease of 8.9%.

Based on data released by China Real Estate Information Corp (CRIC) on Monday, the total money raised by 80 real estate companies was 21.36 billion yuan, a month-on-month decrease of 41.5% and a year-on-year decrease of 51.9%. The monthly financing scale decreased significantly, reaching a new low since 2020. The cumulative financing amount for these companies from January to October was 512.76 billion yuan, a year-on-year decrease of 23.48%.

Based on data by the two market research organizations, both the entire real estate industry and the 80 real estate companies faced continued weak financing conditions with a sustained decline in financing scale in October.

(1) Real estate companies primarily issued medium-term notes.

According to CRIC data, the 80 real estate companies issued bonds worth 6.02 billion yuan in October, a month-on-month decrease of 37.3% and a year-on-year decrease of 81.4%. Among the 6.02 billion yuan, no foreign bonds were involved. Medium-term notes were 5.5 billion yuan, accounting for 91%, with a month-on-month decrease of 23.6% and a year-on-year decrease of 60.7%; corporate bonds were 520 million yuan, with a month-on-month decrease of 78.3% and a year-on-year decrease of 96%. From January to October, the bond issuance scale of real estate companies reached 266.08 billion yuan, of which bonds issued domestically were 257.95 billion yuan. Only 3.05% of the bonds were issued overseas.

(2) Chinese debt-issuing real estate companies were still dominated by state-owned enterprises such as Vanke.

Eight companies issued bonds in October, an increase of 1 compared to the previous month. In terms of the bond issuance scale, the largest issuer was China Vanke, which issued a 1.2-billion-yuan medium-term note. In terms of bond maturity, Financial Street and Powerchina Real Estate Group both issued 5-year medium-term notes, which were the longest-term bonds issued in October. In terms of bond issuance interest rates, China Merchants Shekou issued a medium-term note with an interest rate of 2.9%, the lowest among all bonds issued by real estate companies in October.

(3) Real estate companies are actively issuing additional shares, which is beneficial for boosting market confidence.

According to data from the China Index Academy, currently nearly 30 real estate companies on the A-share market are applying for equity financing, and eight of them have received approval from the China Securities Regulatory Commission (CSRC).

Real Estate Companies Overwhelmed by Over 100 Billion Yuan of Bonds in October

Along with the shrinking financing scale, real estate companies in China face significant debt repayment pressure. According to data from CRIC, in October, 80 real estate companies had 20 bonds maturing, with a total value of approximately 30.7 billion yuan after excluding those that had been redeemed early. This means that the financing scale in October (213.6 billion yuan) was far below the debt repayment due in October (307 billion yuan).

In addition, in November, 25 bonds are set to mature, with a total value of approximately 40.9 billion yuan after excluding those that have been redeemed early, representing a 33% increase compared to the previous month. Among the maturing bonds, the largest single amount was a $590 million offshore bond issued by Evergrande in 2018.

According to data from the China Index Agency, the balance of bonds maturing within 2023 is 116.53 billion yuan, with overseas bonds accounting for 23.4% and credit bonds making up 76.6%.

Regarding debt defaults, on October 4, China SCE Property Holdings Limited announced that it had not paid the principal and interest of a syndicated loan that had matured, amounting to approximately 61 million US dollars. On October 10, Country Garden also announced that it had not paid the principal amount of 470 million Hong Kong dollars that was due.

Struggling Real Estate Companies Pursue Debt Restructuring

As favorable policies continue to be implemented, several real estate companies, including Sunac, Evergrande, and Country Garden, have received approval for their domestic bond extension plans, involving amounts exceeding ten billion yuan. Recently, several companies, including Kaisa Group Holdings, have been progressing with the restructuring of their overseas debts.

On October 17, Kaisa Group Holdings, which has been undergoing restructuring for nearly two years, began to announce its progress. The company has been working on a preliminary debt restructuring plan, including debt-to-equity conversion, issuing new bonds for replacement, and providing additional credit enhancement measures. However, the company still faces some issues, as various parties have not yet reached a final agreement on the preliminary plan, and some terms proposed by the company are not supported by the bondholder group.

On October 20, Junfa Group Co. Ltd. held a debt restructuring coordination meeting and has received interest from nine financial institutions to participate in the restructuring. Back in July 2022, Junfa Group was unable to pay interest of $13.04 million on its bonds, resulting in a default. Since the substantive default occurred, its debt issues have attracted widespread attention. But due to its not being a publicly traded company and not disclosing its financial situation, the company had not revealed how it would address the debt issue. The recent official announcement was the first time it officially disclosed details regarding debt restructuring matters.

Chinese Government Gives Equal Support to Real Estate Companies Regardless of Their Ownership Type

Struggling Real estate companies, especially private ones, have gained the attention of relevant authorities.

Last Tuesday, the China Central Financial Work Conference mentioned supportive policies for real estate financing. The conference emphasized the promotion of a virtuous cycle of finance and real estate, the improvement of regulatory systems for real estate companies, and capital management, and the enhancement of macro-prudential management of real estate finance, all with an aim to treat different types of real estate companies equally and satisfy their reasonable financing needs.

Last Friday, the head of the bond department at the CSRC reiterated the commitment to maintaining overall stability in real estate companies' debt financing channels and supporting the reasonable financing needs of normally operating real estate companies. The CSRC will strengthen the monitoring of risks associated with urban investment bonds and consider safeguarding the smooth operation of the bond market as a top priority.