China’s Property Developers Told to Pay Their International Debts On Time
China’s regulators are stepping up efforts to ensure property developers and other companies can repay the interest and principal on their offshore bonds on time, after a string of missed and late payments triggered turmoil in the bond markets, fueling concerns about a potential liquidity crunch and more defaults.
The National Development and Reform Commission (NDRC), which oversees offshore corporate bond issuance, and the State Administration of Foreign Exchange (SAFE) called companies “in certain major industries” to a meeting in Beijing to discuss their offshore bonds, according to an official statement (link in Chinese) released on Tuesday.
The foreign currency regulator is also investigating the offshore debts of property developers and facilitating repayment of overseas bonds, people with knowledge of the matter told Caixin. The Shanghai branch of SAFE has told developers to report by Wednesday the status of offshore bonds maturing this year and to submit by Friday their arrangements for repayment. It also demanded that it should be notified by a company in advance of any default on an offshore bond, the sources said.
The NDRC’s report of the meeting is the latest effort by the government to restore calm to markets which have been shaken by bond defaults and a collapse in confidence among home buyers. Earlier this month, officials including central bank Governor Yi Gang and Zou Lan, head of the central bank’s financial market department, said publicly that risks to the financial system stemming from Evergrande are controllable and are unlikely to spread.
But it also serves as a warning to developers to get their houses in order. One banker specializing in real estate finance told Caixin that the attention from regulators will make developers think twice before defaulting. Experts involved in the trust industry and overseas hedge funds said regulatory help for processes such as approving foreign currency quotas and transferring funds overseas won’t solve the fundamental problem of tight liquidity in the property sector.
News of the meeting called by the NDRC and SAFE emerged as Beijing-based property developer Modern Land China Co. Ltd. announced on Tuesday that it had failed to pay the interest and principal on a $250 million bond that matured on Monday owing to unexpected liquidity issues. That brought the total value of offshore bond defaults by Chinese companies this year to $9 billion, with property developers accounting for about a third of the total, according to data compiled by Bloomberg.
The sources told Caixin that eight property companies, including Kaisa Group Holdings Ltd., Central China Real Estate Ltd., Shanghai Shimao Co. Ltd., China Vanke Co. Ltd. and Sino-Ocean Group Holding Ltd. were present at the meeting. The participants included companies that are in danger of missing bond payments as well as those who have been “well behaved,” the sources said.
Kaisa Group, which in 2015 became the first Chinese developer to default on a U.S. dollar bond, has a $400 million offshore bond due in December. The prices of several of its bonds plunged last week after it reportedly canceled a meeting with international bondholders.
Companies were told the government supports the healthy development of the real estate sector and will formulate and release policies, although the market may take some time to digest them, the sources said.
In its readout, the NDRC said that the meeting gave participants the opportunity to talk about their business and operating conditions and plans for repaying their offshore bonds. Officials listened to their comments and suggestions, promised to facilitate the repayment and refinancing of foreign-currency debt provided it is compliant with regulations. At the same time, companies must optimize the structure of their foreign debt, make sure that the proceeds of fundraising are used for approved purposes only, follow financial discipline and market rules, actively prepare for the payment of principal and interest on overseas bonds, and maintain their reputations and market stability.
A source close to the regulators told Caixin that SAFE is stepping up efforts to help developers in terms of facilitating or speeding up the processes and procedures involved in transferring currency overseas but will only do so in accordance with the rules and policies governing supervision of foreign currency transactions.
The Shanghai branch of SAFE will facilitate procedures for transferring funds and repaying dollar bonds due by the end of this year, Caixin has learned. In mid-October, local branches of SAFE in the eastern province of Fujian, and the cities of Shenzhen and Shanghai asked some developers what help they need for transferring funds overseas to repay offshore bonds. A source with a Hong Kong-listed property company said the local foreign exchange agency helped them with transferring funds after learning about their needs, but the funds can only be used for bond payments.
Contact reporter Zhang Yukun (email@example.com) and editor Nerys Avery (firstname.lastname@example.org)
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