Realtors jump onto bond bandwagon

Cheaper rates, removal of restrictions proving highly attractive to companies, say experts

Real estate companies are flocking to the domestic bond market to raise funds, as more lenders are offering cheaper rates and previous restrictions on issues have ended.

About 60 listed property companies have announced plans to issue bonds this year for a cumulative amount of 250 billion yuan ($39 billion), according to data provided by Centaline Property Agency.

In August alone, 14 developers have announced plans to issue bonds worth 64.8 billion yuan.

The amount of issues for August alone is more than that raised last year, when 15 listed companies sold 23.5 billion yuan of bonds.

Recent high-profile bond sales included Sino-Ocean Land's 5 billion yuan plan, Sunac China's 5 billion yuan plan, Country Garden's up to 3 billion yuan plan and China Vanke's up to 9 billion yuan plan.

The bond splurge is a result of the CSRC's accelerated approvals for developers' bond offerings to help avert a slump in the real estate and construction sectors that make up about one-third of the economy. Property companies were banned from tapping the 37 trillion yuan onshore market until April 2014, when the restriction was lifted.

This is in stark contrast to this year's dramatic fall in offshore market financing, once a lifeline for China's cash-hungry developers when their domestic financing routes were crimped.

To date, about $18.3 billion has been raised from the offshore bond market, while a year ago the amount was $43.2 billion.

Homebuilders have also been attracted by the falling coupon of the domestic market. Country Garden, for example, sold its first onshore bond (3 billion yuan, three-year notes) in July with a record-low coupon of 4.2 percent.

It sold another 3 billion yuan this month with the same coupon. Longfor Property, another major developer, sold its five-year debenture at 3.93 percent and seven-year notes at 4.2 percent, the lowest record this year.

The average coupon for developers' bonds fell to 5.65 percent this year, from 7.56 percent last year, according to the Shanghai Securities Journal. China's benchmark lending rate is at its lowest level after three rate cuts by the central bank this year.

As developers turn to the bond market, issuance of property trust products, once a critical funding avenue besides offshore market, fell to 54.6 billion yuan in the first half compared with 140 billion yuan in the same period of 2014, Use Trust data showed. Average yield on property trust financing in the first six months was 9.7 percent.

Developers are particularly enthused by the corporate bonds supervised by the the market regulator. Once a periphery product in China's 37 trillion yuan bond market, it got a huge boost this year after the CSRC lowered the entry threshold for issuers.

Issuance of such bonds has exceeded 550 billion yuan so far, of which more than 70 percent was sold by developers, according to Haitong Securities.

The expected interest rate rise in the United States, and the strengthening of dollar against the yuan have made the dollar-denominated bonds much less appealing to investors.

The ongoing opening up of the domestic bond market as a funding avenue has provided a "buffer" to yuan depreciation's impact on developers, said Simon Wong, an analyst with Moody's Investor's Service, a global ratings agency .