Chinese Developers Face Tighter Financing, Local Curbs, S&P Says

Chinese Developers Face Tighter Financing, Local Curbs, S&P Says

Chinese developers face risks such as narrowing financing channels and more property tightening measures by local governments this year, according to Standard & Poor’s.Developers’ balance sheets and access to funding are likely to weaken in 2014, while big cities including Beijing and Shanghai may impose further curbs if prices rise too fast, S&P Hong Kong-based analyst Bei Fu said on a conference call today. The credit-rating company maintained a stable outlook for the sector, though said developers that overly expanded in the past 18 months could be downgraded.

Chinese developers issued about US$22 billion of bonds on the offshore markets in 2013, almost double the previous year, according to S&P, as land prices increased. New-home prices in December had the biggest year-on-year gain in 2013, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner, while sales tracked by the government in the first 11 months of 2013 were just shy of $1 trillion.

“Many developers exceeded their sales target last year, but we also saw them issue bonds as they realized that their land acquisitions went beyond budget,” Fu said. “The offshore bond market this year may not be as strong as in 2013 because of quantitative easing tapering in the U.S.”

Tighter Liquidity

Liquidity is also getting tighter at home. The People’s Bank of China didn’t inject any funds into the interbank market in the past two weeks, according to data compiled by Bloomberg. The seven-day repurchase rate, a benchmark money-market rate indicating cash availability in the banking system, jumped 26 basis points yesterday to 4.29 percent, according to a daily fixing compiled by China’s National Interbank Funding Center. That was the biggest increase since Dec. 31.

Some developers face rising default risks, including Renhe Commercial Holdings Co. (1387) and Glorious Property Holdings Ltd. (845), controlled by billionaire Zhang Zhirong, S&P said.

High land prices and a liquidity drain are the two biggest challenges Chinese developers face this year, Eva Lee, a property analyst at UBS AG, said earlier this week.

At least 10 Chinese cities have tightened local property policies since November.

Home prices will rise about 5 percent from 2013, while home sales volume will jump about 10 percent, according to S&P.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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