Evaluation-Chinese language builders’ offshore collectors eye bargains; cautious on demand By Reuters

© Reuters. FILE PHOTO: Unfinished residence buildings stand at a residential advanced developed by Jiadengbao Actual Property in Guilin, Guangxi Zhuang Autonomous Area, China September 17, 2022. REUTERS/Eduardo Baptista/File Photograph

By Davide Barbuscia, Samuel Shen and Xie Yu

NEW YORK/SHANGHAI/HONG KONG (Reuters) – Some offshore bondholders are scouting for bargains in China’s cash-squeezed property sector after a slew of funding assist measures adopted a brutal slide, however the unsure outlook for a restoration in residence demand will maintain others on the sidelines.

Beijing has stepped up assist in latest weeks to release a liquidity squeeze that has stifled the trade, which accounts for 1 / 4 of the world’s second largest economic system and has been a key driver of development.

International traders’ return to the sector is shaping as a key take a look at of sentiment after many builders defaulted on debt obligations over the previous yr, within the wake of Beijing’s vigorous crackdown on debt-fuelled growth.

Mark Dong, co-founder and common supervisor of Minority Asset Administration in Hong Kong, mentioned his fund had been discount searching Chinese language property greenback bonds since September, in a wager that the market sell-off was overdone.

    “The fairness refinancing coverage has made clear that almost all listed builders will get authorities assist,” mentioned Dong, whose agency holds such bonds to the face worth of roughly $400 million.

“Uncertainty has been vastly lowered.”

The remark adopted a transfer this week by securities regulators to carry a years-long ban on fairness choices by listed property corporations in search of to boost funds. That in flip prompted three builders to unveil fundraising plans.

An index monitoring high-yield greenback bonds of Chinese language builders has jumped greater than 70% from its Nov. 3 low, however continues to be down about 70% from its peak in Could, 2021.

China property shares and bonds https://fingfx.thomsonreuters.com/gfx/mkt/gdvzqyezxpw/Chinesepercent20propertypercent20sharespercent20andpercent20bonds.png

Regardless of the latest worth leap, Dong mentioned, “It isn’t too late to purchase,” because the market temper has not totally recovered.

A rising record of Chinese language builders have entered into or are getting ready to kick-off debt restructuring talks with offshore bondholders after defaulting on funds.

For instance, China Evergrande Group, which is on the centre of the property disaster, goals to win collectors’ approval for a plan to restructure offshore debt value $22.7 billion by as quickly as the tip of February.

The grim sector outlook, with falling residence gross sales and fewer sources of elevating recent funding for developments, has raised the prospect of a large haircut for offshore bondholders.

“We now have turned barely much less damaging, however consider solely a handful of personal Chinese language actual property corporations will survive with out having to restructure,” mentioned Max Wolman, senior portfolio supervisor at abrdn, which owns such bonds, however is underweight on the sector.

DEMAND OUTLOOK

Fund managers have been reducing their holdings in Chinese language property bonds by half or much more this yr because the sector lurched from disaster to disaster and blew a deep gap in asset managers’ efficiency.

Of 241 dollar-denominated bonds issued by Chinese language property corporations, 211 are buying and selling in distressed territory under 50 cents on the greenback, Refinitiv knowledge reveals.

The latest rally in builders’ shares and bonds on the again of funding assist measures, nevertheless, has given traders some respite. In November, Hong Kong’s Mainland Properties Index posted a report month-to-month achieve of 70%.

But considerations swirl about how lengthy the rally will final, in addition to if traders will return to the debt market within the absence of a rebound in residence demand, with October seeing a fifteenth straight month-to-month fall in property gross sales, measured by ground space.

“There’s a exceptional flip of property insurance policies, however corporations can’t get again onto their ft with out bringing again gross sales,” mentioned Li Gen, chief govt of Beijing-based BG Capital Administration Ltd, which specialises in credit score funding.

Some traders are betting on China’s easing of prolonged COVID-19 curbs, following nationwide protests in opposition to the world’s hardest measures, to carry a revival in residence gross sales.

“A restoration in property gross sales can be firmer in a re-opening state of affairs,” mentioned Justin Ong of Columbia Threadneedle, which holds China property bonds, as it might supply a clearer timeline for re-opening.