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Thirty real estate counters issued refinancing plans resulted from epidemic outbreak,successful containment will relieves financial woes
2020/03/04 09:24:12

Mar 04, 2020 (China Knowledge) - According to incomplete statistics, 30 listed real estate companies have issued debt financing plans last month. Due to declining home sales affected by COVID-19, and coming peak season on debt repayment, real estate companies are facing unprecedented challenges and heaviest financial pressure.

In order to alleviate the financial woes, the number of short-term financing bills issued by real estate companies has increased significantly. As COVID-19 will affect, at least, in the coming months' sales and operating cash flow, issuing short-term financing debt can relieve the short-term pressure to some extent.

At the same time, to cope with the possible market changes in the coming months, most of the real estate companies will accelerate the use of reserve funds in the first half year. Although the U.S. dollar (USD) debt is an important capital supplement for some real estate companies it is difficult to become the main source of financing because of the quota imposed by the Chinese government; therefore, the issuance of USD debts does play an important role in relieving financing pressure.

It is worth noting that the cost of financing short-term USD debts issued this month is relatively low, the coupon rate of short-term USD debts are all lower than 10%, and the lowest is 4.80%. In some cases, short-term USD debts with a coupon of more than 10% are very common. Currently, oversea financing cost of real estate companies has greatly improved. For example, the coupon of one-year USD 0.4 bln debt issued by Kaisa Group (1638) is 6.75%, 5.25% lower than its one-year USD debt issued at the end of 2018. In addition, real estate companies’ overseas debts in Feb are well subscribed.

The improved debt market could attribute to the largely looser credit line and better-improved credit ratings, but the shock absorbers that most have amassed come from strong operating performance and stable cash flow. Take the case of Kaisa Group (1638), its debt issuance obtained more than 140 institutional investors' subscriptions, with a total final sum of more than USD 2.1 bln. It is mainly due to the improvement of Kaisa Group (1638)’s performance and rating. In 2019, Kaisa Group (1638) achieved a contract sales amount of RMB 88.1 bln, up 25.8% YoY, exceeding the annual target.

As the epidemic is ‘super contagious’ that causes large scale business losses the property market has now fallen into a black-hole conundrum that the Chinese government and many authorities’ rescue plans may not resuscitate property sales in coming quarters to recover. But, if past market behavior is the best guide, China’s property market should recover on inherent demand and bottled up buying sprees and may rebound if the containment of the COVID-19 that works is maintained.

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