In The First Seven Months, The Overseas Issuance Of Bonds By Real Estate Enterprises Decreased By 26%, "Borrowing New To Repay The Old" Is Difficult To Solve The Debt Repayment Pressure

In the first seven months of this year, the blowout of real estate dollar bonds in the first two years slowed down significantly, and the financing focus of real estate enterprises turned to domestic. The reason is that the domestic liquidity is loose this year, the real estate enterprises choose a lower cost financing way, and the cost of capital has decreased.

Loose financing is a good news for the real estate enterprises which have great debt repayment pressure this year. In addition, the sales of some real estate enterprises are also accelerating the recovery. Affected by this, the debt repayment pressure of real estate enterprises has been alleviated.

However, under the debt circulation mode of "borrowing the new to repay the old", the capital pressure of real estate enterprises is relatively alleviated. They still need to find more diversified financing channels and constantly reduce the cost of capital.

Turning to domestic financing

At the end of last year, the total amount of issuance of Housing Bonds by China's international companies was US $2.56 billion, down from US $2.56 billion at the end of last year.

Among them, 23 were issued in July in a single month, similar to the same period last year, with the issuance scale of 7.1 billion US dollars, a year-on-year decrease of 1.4 billion US dollars.

The previous April, affected by the global new crown pneumonia epidemic, investors panicked and sold a large number of overseas bonds, and even "zero issue" of Housing enterprises' overseas bonds. Although the growth continued for three consecutive months, the overseas bond issuance of real estate enterprises was still in a negative growth range in July.

Different from the overseas situation, since March this year, with the domestic epidemic situation tending to stabilize and the industry returning to work and production, with the strengthening of financial liquidity, the financing environment of real estate enterprises in China has gradually improved. Domestic bond issuance once became the main form of financing for real estate enterprises, and the overall financing interest rate of real estate enterprises dropped.

Data show that in the first half of the year, the average interest rate of domestic bonds issued by top 50 real estate enterprises was 4.86%, down 14.59% from the same period last year. The average interest rate of overseas bonds was 7.47%, down 3.36% from the same period last year.

Take sunshine city as an example. In April this year, it issued 1.2 billion yuan bonds with a coupon rate of 6.95%, and then issued 800 million yuan bonds with a coupon rate of 7.30%. Poly Real estate also issued a total of 600 million yuan of medium-term notes with an interest rate of 3.49%.

Overall, the lowest cost of domestic bond financing in the first half of this year was the RMB 1 billion bond issued by Vanke, with the interest rate as low as 2.56%. The domestic financing costs of other debt financing and medium-term notes are also below 5%.

In the first half of the year, the domestic financing scale of real estate enterprises increased by 12 percentage points to 62% compared with the same period in 2019, while the overseas financing scale only accounted for 38%.

At the same time of new financing, real estate enterprises also try to reduce the high cost financing before. Among them, Vanke decided to reduce the coupon rate of 2017 corporate bonds (the first issue) on June 3, and the coupon rate of two years after the duration was reduced from 4.5% to 1.9%.

On April 28, Huaxia Xingfu also adjusted the interest rate of "18 Huaxia 01" issued in 2018 to 5% from 6.8%. In addition, the Gemdale group also made similar moves. However, due to the great controversy, the plan was not implemented in the end.

At present, when the bond repurchase rate is lowered in the near future, it is not only affected by the bond refinancing environment when these bond issuers choose to enter the bond market.

Shell Research Institute believes that the domestic financing interest rate has been low since February in the first half of 2020, and the domestic financial environment is moderately loose. The low interest rate will encourage some real estate enterprises to take this opportunity to carry out debt replacement, so as to reduce the financial cost of enterprises.

As for the supply and demand of U.S. dollar bonds of real estate enterprises, Chen Yi, director of global capital markets department, managing director of Haitong international securities, believes that the NDRC does not strictly supervise the issuance of one-year bonds by real estate enterprises. As long as the long-term loans are used to repay the old, the supply will not have a significant impact. Moreover, due to the loose global liquidity, it is the Chinese real estate that has a better return on the world's assets. The default rate is low and the rate of return is also good. Therefore, more and more money will flow to Chinese funded real estate.

In addition, Chen Yi pointed out that the domestic interest rate environment was rising in the first half of the year, and the possibility of domestic interest rate reduction in the second half of the year would not be ruled out. If the interest rate was cut, it would greatly relieve the cash flow pressure of developers, which is a good thing for the issuance in the second half of the year.

"New" repayment

Most housing companies have relaxed their financing environment. According to Kerui data, the equity sales of the top 100 real estate enterprises reached 938.64 billion yuan in July, with a year-on-year growth rate of 25.7%, a new high since the correction in April this year. The performance of the top seven hundred real estate enterprises increased year on year, and most of them were more than 20%.

In addition to the relatively loose financing environment of Housing enterprises, the sales ability has been improved. But what can not be ignored is that under the mode of "borrowing new to repay the old" behind the vigorous issuance of bonds and high amount of financing, the capital chain of real estate enterprises is still facing a big test this year.

In 2020, the maturity scale of Housing enterprises will reach 296.5 billion yuan, equivalent to RMB 2034.5 billion yuan.

In addition to overseas debt, wind data shows that the maturity scale of credit bonds of real estate enterprises will be 209.57 billion yuan in 2020, and the total repayment scale of ABS in the whole year will reach 228.7 billion yuan, exceeding the scale of credit debt and overseas debt.

The total maturity scale of overseas debt, credit debt and ABS reached 642.2 billion yuan in the whole year, and the due debts of several real estate enterprises exceeded 10 billion yuan, such as Wanda, country garden, green city, Greenland China, Longhu, Xincheng, Yajule, etc.

Taihe is one of the many real estate companies that need to pay its debts, but so far in July, Taihe has defaulted on two bonds. In the first half of the year, Taihe and Yida were downgraded to rd by Fitch.

In the second half of the year, the pressure on real estate companies to repay debts is particularly great. According to the report of Shell Research Institute, in the second half of the year, the repayment of real estate enterprise bonds will meet the peak period. The maturity scale of domestic and foreign financing bonds is about 558.8 billion yuan, an increase of 58% year-on-year.

According to the report of Guojin securities, from August to December 2020, the total maturity of real estate credit bonds was 176.577 billion yuan, and another 172.407 billion yuan bonds entered the repurchase period, and the maturity scale was basically equivalent to that of bonds entering the repurchase period. Compared with the previous period, the sale back scale of real estate bonds at maturity has increased, and the debt repayment pressure is greater in the second half of the year.

From the perspective of monthly distribution, the peak maturity of real estate bonds in the second half of the year is mainly concentrated in August and September. The monthly distribution of the scale of real estate bonds entering the sell back period is relatively average, and the scale in September and December is slightly higher. Therefore, it is necessary to pay attention to the credit risk caused by the increase of periodic repayment pressure.

According to shell Research Institute, the demand for debt replacement and financing will continue to increase in the next 2-3 years. The bond maturity pressure in the second half of 2021 and the second half of 2022 has exceeded 500 billion yuan and 300 billion yuan respectively.

Wind data statistics also show that in the next five years, the total debt maturity scale of real estate enterprises at home and abroad will reach about 3 trillion yuan, and the maturity scale will remain high from 2020.

Chen Yiwen, CO director and senior director of Fitch's Greater China real estate rating, believes that there will still be an increased risk of default in the next six months, especially some enterprises with slow turnover and poor financial status of major shareholders and high dependence on trust loan financing.

Zheng Junying believes that the three most important credit risks are the maturity of short-term debt, the increase of leverage ratio and the sharp decline of sales. Among them, the risks of bonds and trust loans in the capital market are higher than those of bank loans, while the investment and land acquisition attitude of developers have a direct impact on the leverage ratio, and there is a certain risk of default. However, under this environment, most companies will slow down the speed of land purchase and reduce costs.

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