6.26.19
Beijing regulators are tightening restrictions on bond issuance, the favorite funding channel of Chinese developers. Following paid premium spikes during the first quarter of 2019, regulators hope to curb aggressive land bidding by slowing approvals for onshore and offshore bond issuance. Regulators also tightened approvals for asset-backed securities, another popular financing channel for the nation’s homebuilders.
In an effort to raise cash and project funding, Chinese developers are turning to alternate financing channels, including private-equity (PE) funds and securitization tied to commercial properties. Chinese regulators are yet to reexamine existing policy on securitization linked to commercial properties. Historically, securitization does not represent a popular funding channel for residential developers.
“Developers cannot rely on just one or two channels,” a prominent Chinese developer told media members. “The industry has always been playing this game; regulators close one door, we find another open door.”
Many developers look to onshore private-equity funds to finance new investments. These alternate channels are more expensive than bond financing, and pressure on funding costs may rise. Diversified funding portfolios, developers argue, will help lower companies’ gearing; any minor additional costs will prove worthwhile.
Analysts expect that slow economic growth, aggravated by the ongoing U.S.-China trade war, will compel Beijing to weaken regulations in coming months. Developers intend to move forward with their alternate funding channels, regardless of changes on restrictions in bond issuance.
Read More via Reuters