China’s Embattled Developers Rush to Raise $2 Billion in One Day

(Bloomberg) -- The scramble for cash by Chinese property companies is intensifying as the industry looks for ways to alleviate a historic liquidity squeeze.

Firms announced plans to raise $2.4 billion in just the past 24 hours, taking the total over the last week to at least $4.2 billion, according to Bloomberg calculations. The latest fundraising includes China Evergrande Group’s stake divestment in HengTen Networks Group Ltd. and Country Garden Services Holdings Co.’s second share placement in six months, as well as onshore bond sales by two state-run developers. 

Property firms are stepping up efforts to raise cash as they seek to repay debt at a time when strict rules on leverage, elevated borrowing costs and a slowdown in homes sales are curbing traditional sources of funds. Chinese policy makers have made it clear they expect developers to meet their obligations, even as officials maintain curbs on the sector.

“Many developers are doing everything they can to avert default,” said Abhishek Rawat, portfolio manager at Hong Kong Asset Management Ltd., who turned more positive on the sector last month. “That’s a good sign as it implies they care about their reputation. It shows their willingness to pay.”

The rash of deals comes as developers face a wall of maturing dollar and local bonds at the beginning of 2022. The builders have a total of $13.4 billion of dollar bonds and the equivalent of $12.6 billion in yuan notes coming due in the first quarter, according to data compiled by Bloomberg. The average cost of refinancing such debt via dollar bond issuance remains prohibitively expensive with yields around 20%.

Chinese authorities, who have long put a premium on financial stability, told real estate firms at a meeting Oct. 26 they need to meet all their debt obligations. No developer has defaulted on dollar debt since, after at least four failed to repay offshore obligations earlier that month. 

But despite the panic among bondholders, authorities have been reluctant to provide financial assistance. That’s because of Beijing’s determination to reduce moral hazard in markets, punishing creditors who in the past ignored risks or assumed overextended companies would always be bailed out.

“It is clear that central government does not want to get involve in rescuing developers,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.

The following are details of the deals announced in the past day:

Last week Sunac China Holdings Ltd. raised about $953 million through the sale of new shares as well as a stake in its property management unit. Sun Hongbin, the controlling shareholder of Sunac and the chairman of the board, also provided $450 million from his own funds in the form of an interest-free loan.

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