Real estate firms sell bonds overseas when domestic channels are blocked

Domestic real estate firms have turned their eyes beyond the border to quench their thirst for capital in recent months. Experts said on Wednesday that this choice is understandable as domestic financing channels via corporate bond issuance have been narrowed by the government, but companies still need money to guarantee their growth.

Data from the Centaline Property Research Center showed that so far in 2017, domestic property firms have completed overseas financing that amounts to $ 14.88 billion, up 97 percent compared with the $ 7.56 billion in the first half of 2016. It’s even higher than the overseas financing amount in the whole year of 2016, which was about $ 14.4 billion. Most overseas financing by domestic property firms is done via issuing bonds.

Domestic real estate giant Ever- grande Group announced on June 22 plans to issue three kinds of bonds worth about $ 3.8 billion in total.

The Shanghai- listed Greenland Group also announced on June 23 plans to issue $ 500 million in bonds in Hong Kong.

Xue Jianxiong, president of asset management firm UTC, said that mainland channels for corporate bond issuance by property enterprises have been largely narrowed by the government in recent months for deleveraging purposes, and that’s why real estate companies have no choice but to resort to overseas markets.

According to domestic media reports, no corporate bond was issued on the mainland market in May.

"Financing is necessary for do-mestic companies if they want to achieve great business expansion, ” Xue told the Global Times on Wednesday. An analyst at the Capital Securities who wished to be unnamed also noted that real estate companies always need capital support. “Even if they don’t lack capital in the short term, they need it in the long term. If they have chances to get financing, they would go for it,” he told the Global Times on Wednesday. Another advantage of overseas financing is that the fi nancing costs on overseas markets are lower than on the mainland, Xue said, adding that bond interest rates in Hong Kong are currently between 3 to 5 percent, while on the mainland market it’s around 5 percent.

But whether overseas financing is a surefire plan remains unclear, as the Chinese government is beefing up eff orts to stop real estate firms from issuing bonds overseas, according to Reuters.

There have been worries on the market that intensifying management, rising financing costs and capital outflow as a result of the stronger dollar would leave some property firms in a cash crunch.

“This is likely,” Xue said. “But I guess the government will loosen its grip on the real estate market by that time.”