Small developers go bust amid lending clamp

Business | Bloomberg and Stella Zhai 24 Jul 2019

About 271 mainland property developers declared bankruptcy so far this year, amid stricter market controls that hamper their fundraising ability, mainland media reported.

Since May, top policymakers have sought to limit almost every financing avenue for developers, to ensure they can't buy land at inflated prices and spark a property bubble, while home-buying restrictions have also been widened.

That means bond investors will have to be more discerning, particularly when it comes to smaller developers, as many of them facing looming maturity calls.

A source with a Guangzhou-based small developer said the company has faced more difficulties in fundraising since the second quarter, so even 10 percent interest rate is acceptable. Meanwhile, an account manager of China Merchants Bank (3968) said they currently only provide loans to mainland developers ranked in the top 30.

The landscape is now changing after Beijing earlier this month announced fresh restrictions on foreign-debt sales, allowing firms only to refinance if their offshore notes mature in one year.

Limitations have also been placed on onshore bonds and trust financing, an important shadow-banking channel. A total of 251 property-policy tweaks was unveiled in the first half, according to Centaline.

Notes sold by mainland home builders topped 10 other sectors in Asia in the first half, a Bank of Merrill Lynch index shows, as investors were lured by a relaxation of property curbs and easier liquidity for real-estate firms. However, fund managers say those gains may be short-lived, with both factors now being dialed back.

Meanwhile, embattled Future Land Development (1030) is negotiating to sell 40 projects after the arrest of controlling shareholder Wang Zhenhua, the company said yesterday.

The developer is in talks with Shenzhen-listed Yango Group to offload projects, mainland media said. Jinke Properties has reportedly agreed to buy 10 of the projects.

Future Land shares slumped 11.3 percent to HK$6.75, while Country Garden (2007) fell 2.15 percent to HK$10.90.

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