Tighter Financing Will Stress Weaker Chinese Developers - Corporate Ratings June 16, 2021 - S&P Global
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Tighter Financing Will Stress Ricky Tsang Associate Director
Weaker Chinese Developers Christopher Yip
Coco Yim
Senior Director & Analytical Manager
Research Assistant
Corporate Ratings
June 16, 2021
Mortgage Controls Could Be A Damper
− Banks may have become more selective in releasing mortgage funding to developers, due to regulatory caps, and this is delaying presales
cash collection for those with weaker banking relationships.
− New mortgage growth dropped to 14% in 1Q2021 from 16%-18% last year, despite widespread sales recovery.
− Regulators are also monitoring securitization of mortgage loans to prevent workarounds on mortgage-lending caps. We think the recent
uptick in residential mortgage-backed securities (RMBS) may lose steam and could slow in the second half.
Mortgage Releases Not Catching Up With Sales Recovery Uptick of RMBS Issuance in 2021YTD May Not Last
Individual mortgage loan releases Yearly issuance of RMBS* in China
700
Individual mortgage loans growth yoy National CS growth yoy
584.3
20 100 600
18 499.1
80 500
16 424.4
14 60
Bil. RMB
400
12 40
10 300 264.3
%
%
8 20
200
6 0
4 100
(20)
2
0 (40) 0
2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2018 2019 2020 2021 Jan - Jun YTD
CS--Contracted sales. Source: S&P Global Ratings, Wind. Note: *RMBS here includes 住房抵押贷款 and 住房公积金. Source: S&P Global Ratings, Wind.
2Withering Trust Loans Will Unevenly Squeeze Developers
− Developers with weaker credit profiles but high exposure to nonbank financing (i.e., trust loans) may see channel downsizing.
− Trust companies and financial institutions will be increasingly selective in borrower quality as exposure limits apply.
− Pressure on developers rated 'B’ or below as repayments could deplete cash levels and further squeeze their liquidity positions.
− New trust loan drawdowns by developers tumbled to RMB55 bil. for 5M2021 from RMB167 bil. in 2020 and >RMB420 bil. in 2017.
New Trust Loan Drawdowns Sharply Slowing Developers In ‘B’ Category Rely On Trust Loans More
Trust loan drawdown volume Debt type as % of total debt outstanding, as of end-2020
Trust loan volume to the property sector only (bil. RMB) (left scale) Bank loans Syndicated loans Domestic bonds Offshore bonds Other debt*
Trust loan to property sector as % of to all sectors (right scale) 100%
9% 10%
500 60 90%
27% 16%
450 80% 19%
400 50
70%
350 18% 12%
40 60% 24%
300 6% 9%
50%
250 30 8%
%
40% 2%
200
20 30%
150 51% 51%
100 20% 39%
10
50 10%
- 0 0%
2018 2019 2020 2021 Jan - Jun B+ or below BB- to BB+ BBB- or above
Source: S&P Global Ratings. Note:* Other debt mainly includes trust loans, convertibles bonds. Source: S&P Global Ratings.
3A Flight To Quality In Capital Markets
− Developers with better scale and credit profiles will continue to enjoy lower issuance costs and longer tenor.
− Coupons for Investment grade and 'BB' category players are both 90bps lower, at 5.1% and 6% respectively, in 5M2021 vs. 2018.
− In contrast, 'B+' or below rated developers saw coupons rise 60bps to 9.2% in 5M2021from 8.6% in 2018.
− Domestic market rates also cheaper 100 bps to 140 bps for developers rated ‘BB-’ or above, despite higher defaults of late.
Higher-Rated Companies Enjoying More Funding Cost Savings Domestic Coupons Ticked Up In 2021, Following Defaults
Avg. coupon for U.S. dollar issuances of rated developers Avg. coupon for domestic issuances of rated developers
B+ or below BB- to BB+ BBB- or above B+ or below BB- to BB+ BBB- or above
11 7.5
10 7.0
9 6.5
8 6.0
%
7 5.5
%
6 5.0
5 4.5
4 4.0
3 3.5
2 3.0
2017 2018 2019 2020 2021 YTD 2017 2018 2019 2020 2021 YTD
Note: Data collected as of June 3, 2021. Source: S&P Global Ratings, Bloomberg, Wind.
4Developers With Weak Market Accessibility Could Face Strain
− Refinancing in capital markets could be a liquidity strain for developers if market accessibility narrows.
− Recent defaults will add to price volatility as developers repay debt maturities and look to issue new paper.
− Developers rated 'B+' or below have the most exposure for maturities due in the remainder of 2021, an aggregate of US$25.5 bil. both
onshore and offshore.
Offshore And Domestic Bond Issuances Maturity Wall For U.S. Dollar Bonds Maturity Wall For Domestic Bonds
U.S. dollar issuance Domestic issuance 2021 2022 2023 2021 2022 2023
120 30 20 18.7
26.5
100 25
14.4
15 13.6
19.8 13.1
80 20 12.4
Bil. USD
Bil. USD
Bil. USD*
10.0
60 15 10
12.4 8.3 8.3
10.5 7.4
40 8.4
10
7.0
5
20 4.2
5 2.9
1.0
0
2017 2018 2019 2020 2020 2021 0 0
YTD YTD B+ or below BB- to BB+ BBB- or above B+ or below BB- to BB+ BBB- or above
Note: Data collected as of June 3, 2021. 1 RMB = 0.16 USD. Source: S&P Global Ratings, Bloomberg, Wind.
5Green Bonds Offer Green Shoots For Funding
Developers In 'B' Category Issuing Most In Green Space
− China’s recent pledge to achieve carbon neutrality by 2060 has
U.S. dollar green bond issuance amount
2018 2019 2020 2021 YTD
driven a surge in green bonds.
1,600 1,478 − China sold US$17.7 bil. worth of offshore green bonds in 5M2021
1,400 (FY2020: US$32.9 bil.), of which 34% were from property sector.
1,200
1,000
− Policy momentum as well as investor demand drive issuances
Mil. USD
1,000
800 among rated developers, which have issued US$2.5 bil. for
600 470 500 5M2021 versus about US$1 bil. in FY2020.
400 250
200 200 − Proceeds may not always be entirely allocated to designated green
200
- - - - -
- projects categories in line with the Green Bond Principles.
B+ or below BB- to BB+ BBB- or above
Note: Data collected as of June 3, 2021. Source: S&P Global Ratings, Bloomberg.
− Some issuances offer flexibility in channeling proceeds to short-
term deposits, investments, or even debt repayment.
Green Bond Could Offer Pricing Advantage
Example: CIFI Holdings' U.S. dollar Issuance date Tenor Coupon − "Greenwashing" (the practice of selling bonds presented as
issuances green, while proceeds will fund projects with unclear
environmental benefits) is a risk in a market where demand for
US$350 mil. green bond Nov. 2020 5.5 years 4.45%
these issuance is high.
US$350 mil. senior notes May 2021 5.25 years 5.25%
− Improvement in pricing and/or market receptiveness is still the
key concern for issuers.
6Keepwell Structure Highly Reliant On Credit Profile Of Parent
– Legality of keepwell deeds is in the spotlight with the bankruptcy of Peking University Founder Group, after the administrator did not
recognize the deeds, sounding the alarm bell on subordination.
– We do not consider keepwell deeds as legally binding credit support. Offshore bonds backed by keepwell deeds are assessed through the
overall group status the issuing entity has with its parent company.
– Group status, and hence group support, generally weighs the contribution and importance the issuing entity has within the group.
Weaker Credits Tend To Have Larger Offshore Revenue & Asset Hengda, R&F and Vanke Mostly Exposed to Keepwell Structure
Guarantor/issuer asset as % of keepwell provider's asset
Hengda Real Estate
Guarantor/issuer revenue as % of keepwell provider's revenue
27.9 Guangzhou R&F
30
25 China Vanke
18.6
20
15 13.1 11.8 11.7 Poly Developments
%
10 6.0 7.4
5.0 5.1 4.5
2.0 3.3 1.5 Gemdale Corp
5 0.0
0 Beijing Capital Group
Gemdale Corp
Guangzhou R&F
Greenland
China Vanke
Hengda Real
Beijing Capital
Developments
Holding
Estate
Group Greenland Holding
Poly
- 1,000 2,000 3,000 4,000 5,000 6,000
Mil. USD
Source: S&P Global Ratings. Source: S&P Global Ratings.
7Related Research
Title Date
Higher Stakes: Analyzing The Risks Of China’s Property Joint Ventures June 15, 2021
Chinese Property Developers' Financial Discipline Is Policy Induced April 7, 2021
China Property Watch: Margin Slide Is Far From Over March 31, 2021
China’s New Curbs On Real Estate Loans To Flatten Sales January 6, 2021
China Property Watch: Issuers Go On A Debt Diet November 12, 2020
China Commercial Property: Incumbent Advantages Today Suggest Credit Strength Tomorrow November 3, 2020
China Developers Steadfast Against Margin And Policy Challenges September 3, 2020
China Property: New Curbs A Sign Of Reviving Home Sales August 12, 2020
China Developer Joint Ventures: The Case Of The Vanishing Revenue June 9, 2020
China Developers’ 2019 Results Expose Strains Before COVID-19 Crisis Hit April 8, 2020
China Property Watch: New Virus, Unprecedented Risks For China's Developers March 2, 2020
China’s Illiquid Developers Ask, How Long Will The Coronavirus Crisis Last? February 2, 2020
8Abbreviations Used In This Report
– RMB--Chinese renminbi.
– mil.--Million.
– bil.--Billion.
– 1Q--First quarter.
– 5M2021--First five months of 2021.
– Bps--Basis points.
– Avg--Average.
– YTD--Year to date.
– Yoy--Year on year.
9Thank You
Ricky Tsang Christopher Yip Coco Yim
Associate Director Senior Director & Analytical Research Assistant
Manager
+852 2533 3575 +852 2533 3593 +852 2912 3071
ricky.tsang@spglobal.com christopher.yip@spglobal.com coco.yim@spglobal.com
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