China’s property bond market sees risk on the rise – Bloomberg

According to Bloomberg, China’s $355 billion property bond market is seeing rising risks as further defaults are expected on the horizon.

Key quotes

“Borrowing costs in dollars for China’s high-yield issuers, most of whom are property developers, almost doubled this year to 11.2 percent, the highest in about four years, ICE BofAML indexes show. To make things worse, the sector faces a record $18 billion bond maturities in both onshore and offshore markets in the first quarter of 2019.  

“Funding conditions may not improve until sentiment changes,” said Clement Chong, a Singapore-based senior credit analyst at NN Investment Partners Ltd. “Defaults are happening more frequently onshore. I believe some developers will be caught up in this if funding cost keeps rising.”

Even the country’s largest developers have had to pay sky-high yields on dollar bonds to lure investors. Junk-rated China Evergrande Group, the nation’s second largest builder by sales, sold $1.8 billion three-tranche notes last week. The 13.75 percent coupon on the five-year bond was the highest interest rate it has ever paid on a dollar debenture, according to Bloomberg data.

Financial flexibility of builders, which have $355 billion notes outstanding, has also diminished as the drop in their share prices makes it challenging to pledge shares against their borrowings.”