S&P says Chinese developer bond issuance to slow this year

11 June 2014   Category: News, Asia, China, Global   By Derek Au

Ratings agency Standard & Poor’s (S&P) expects bond issuance by Chinese developers to slow down slightly this year amid continued weakness in the Mainland’s residential property sector.

Bei Fu, an analyst at S&P, said that the offshore bond market will remain open for Chinese developers with a strong credit profile, but expects the overall rate of new issues to tail off. According to S&P’s data, bond issuance by Chinese developers has totalled more than US$10 billion in the year-to-date, compared to a record of more than US$20 billion last year. The ratings agency added that as a result of softer property and capital markets, bond coupon rates will be generally higher, but remain attractive compared to the cost of onshore instruments such as bank and trust loans.

While residential property sales in China declined 10% in the first four months of this year, S&P expects sales volume will gradually improve from the second half as property developers cut prices to boost transactions and meet ambitious sales targets. S&P forecasts that the average selling price will fall 5% this year compared to a rise of 11.5% last year.

S&P added that the credit trend for rated developers will be neutral this year, and expects most large players to weather the coming market correction. Developers with more aggressive, debt-funded growth appetite will face downgrade risks, however. Given that a number of developers met their maturity obligations in the first quarter, S&P believes that the refinancing risk for bonds due this year should be manageable, but weaker players may go into default or be acquired by others.