Strong returns spur $10b bonanza in builder bonds

Developers are leading returns in China's bond market in the second half of the year and planning more offerings as Premier Li Keqiang opens financing channels and eases property restrictions to shore up the slumping industry.

Yuan-denominated real estate securities have advanced 4.2 percent since June 30, the most among sectors that have more than one bond in Bank of America Corp's China corporate index. Eleven home builders including China Vanke Co, the nation's biggest, said they aim to raise 61.7 billion yuan ($10 billion) in the interbank market.

Regulators last month said they will allow such offerings for the first time, according to China Investment Securities Co.

Builders in the world's second-biggest economy, which the World Bank estimates derived 16 percent of its growth from property development in 2013, are increasing bond offerings to help refinance 81.8 billion yuan of debt due next year.

New home prices fell in all but one city monitored by the government last month, fueling speculation Li will increase industry support after easing mortgage requirements and authorizing real estate companies to issue notes on the smaller exchange-traded market for the first time in five years earlier this year.

"The property industry may stabilize in the first half of next year due to policy support from the government," said Cheng Peng, head of investments at Beijing-based Genial Flow Asset Management Co, which oversees almost 10 billion yuan.

"When developers start issuing bonds on the interbank market, we will certainly buy some."

China Vanke plans to sell as much as 15 billion yuan of bonds, according to the Shenzhen Stock Exchange.

Guangzhou R&F Properties Co plans to offer as much as 7 billion yuan of notes, according to a Sept 19 company statement to the Hong Kong Stock Exchange.

Li has taken steps to prevent a sharper decline in the real estate industry as he seeks to meet a target of 7.5 percent growth this year. Gross domestic product climbed 7.3 percent in the third quarter, the slowest pace since the first three months of 2009.

The central bank eased mortgage rules on Sept 30 for homebuyers who have paid off existing loans, reversing course after a four-year campaign to contain home prices.

The National Association of Financial Market Institutional Investors circulated a notice among financial institutions last month saying it will allow listed home builders rated AA or higher to issue bonds in the interbank market, which it regulates, according to an Oct 13 China Investment Securities report. The market accounts for more than 90 percent of China's outstanding debt.