Bonds issued by Hong Kong-listed property developers are rebounding from their worst first half in two years as strong property sales in the first half and a record $6.8 billion in offshore debt sales spur confidence the borrowers have the resources to weather government tightening measures aimed at curbing soaring real estate prices on the mainland.

All but one of the eight dollar bonds sold between January and June have recovered at least 75 percent of their losses, according to prices from BNP Paribas SA, ING Groep NV, Nomura Holdings Inc and Royal Bank of Scotland Group Plc.

Country Garden Holdings Co's 11.25 percent notes due 2017 trade at 102.5 cents on the dollar, up from 87 cents in May. New World Development Ltd's 7 percent bonds due 2020 fetch 104.95 cents, compared with a low of 97.15 cents in June.

Profits for mainland developers are rising while slowing house-price growth eases concern regulators will enact more measures to cool the market. Agile Property Holdings Ltd, which builds condominiums in 22 mainland cities, reported an almost five-fold increase in first half profit last month.

"Most of the property companies' liquidity is still in good shape," said Iris Chan, senior credit analyst with HSBC Global Asset Management in Hong Kong. "The big companies don't have a problem with sales, and although prices have decreased the volume is still there."

Agile's 8.875 percent bonds due 2017 traded at 101.5 cents Monday, after plunging to 86 cents on May 25 as government initiatives to slow property inflation took effect. The measures included a ban on loans for third-home purchases and higher mortgage rates.

The $6.8 billion of bonds sold this year is the most since Bloomberg began compiling data in 1999 and more than four times the $1.62 billion issued in 2007, the next biggest year on record. Some $4.4 billion was raised in the first half, a period when the developers' bonds had their worst performance since the credit crisis in 2008, Morgan Stanley data show.

Country Garden, Agile Property and Evergrande Real Estate Group Ltd have cash surpluses that exceed their short-term debt, according to Feng Zhi Wei, a credit analyst at Standard Chartered Plc in Singapore.

Bond sales have "helped some developers build a substantial liquidity cushion" that would protect against a market downturn, she said.

Strong property sales also boosted their coffers. For example, Evergrande, which develops projects in Guangdong province, nearly quadrupled its first-half net profit to 2.5 billion yuan from a year ago. Its pre-sales to August 29 met 75 percent of its annual target and its free cash balance was 10 billion yuan.

The company's 13 percent notes due 2015 last traded at 101.75 cents on the dollar, up from a low of 90 cents in May, BNP Paribas prices show.

Derivatives insuring against a default by Shimao Property Holdings Ltd have fallen 327 basis points from a high this year of 918 basis points on May 7, according to data provider CMA. The credit-default swaps show investors are pricing in a 40 percent chance of default, down from 54 percent in May.

Swaps on Country Garden have tumbled 408 basis points from a high of 1,163 on the same day in May, when the Ministry of Housing and Urban-Rural Development said rapid home price gains could spread to more regions and Swire Properties Ltd shelved its plan for a Hong Kong IPO.

Bloomberg News

(HK Edition 09/07/2010 page2)