If China's government policies are unsupportive, look to Hong Kong or even Singapore. That's the new strategy of Chinese property developers as they turn increasingly to the offshore bond market to raise cash to circumvent tighter policies at home.
Country Garden, a Guandong-based property developer, said it will issue $900m in seven-year senior notes to fund existing and new property projects on the mainland.
The notes - which will be offered in Singapore - carry an interest of 11.125 per cent per year, and will mature in February 2018. Goldman Sachs, JP Morgan and Deustche Bank are the initial purchasers and joint bookrunning managers.
Country Garden's senior note issuance could potentially bring this year's offshore debt financing by HK-listed property developers to Rmb27.5bn ($4.1bn), representing about 40 per cent of total debt issuance in 2010, according to RBS, underscoring how government policies aimed at curbing soaring property prices have made it difficult for them to secure financing on the mainland.
Evergrande Real Estate, for instance, sold $1.4bn of synthetic offshore renminbi bonds last month, while Hong Kong's Wharf announced last week that it would raise $1.3bn via a rights issue.
The surge in offshore financing for land bank expansion suggests that developers - while curtailed by stricter rules - are still bullish about China's property market.
As Jerry Gao, a property analyst at RBS in Hong Kong, told FT Tilt:
Raising money from the offshore debt market in Hong Kong or Singapore helps these companies prepare for further credit tightening. If they have more cash on hand it's easier for them to expand. Further, gearing is only 20 per cent and that's quite low by our calculations.
The surge in bond issuance comes as the government tries to curb lending by commercial banks. China's banking regulator issued another warning on Wednesday telling banks to closely monitor the health of property developers, as well as check lending to local governments.
But not all analysts share the same optimism, with analysts at S&P warning that the recent surge in debt issuance has weakened the credit profiles of many real estate developers, including Evergrande and Country Garden. S&P has a "stable" rating for Evergrande and a "negative" rating for Country Garden.
"The issuers will have limited room to maneuver if property sales and margins are weaker than expected," said Bei Fu, Standard & Poor's credit analyst.
"We are sceptical whether property developers will follow through with their plans to refinance onshore borrowings with bond proceeds. Many companies have a huge appetite for debt-funded expansion."
As developers continue to launch bond issues with such frequency, they could face significant refinancing risks, particularly if market conditions aren't supportive nearer the bonds' maturity dates, Fu said.