[ET Net News Agency, 15 July 2019] Moody's Investors Service said in a new report that
China's restrictions on the issuance of offshore bonds and access to trust loans are
credit negative for rated Chinese property developers, especially for those with weak
liquidity profiles and a small operating scale as they have weaker funding access and less
financial flexibility in deploying financial resources.
On 12 July, China's National Development and Reform Commission (NDRC) introduced new
restrictions on the use of offshore debt by property developers, including a requirement
that bond proceeds are used only to refinance medium to long-term offshore debt maturing
in the next 12 months, and that the purpose of the issuance needs to be explained in the
prospectus.
The restrictions follow earlier restrictions on developers' access to trust loans, amid
the government's ongoing efforts to clamp down on shadow banking.
"The latest measures will reduce the quotas available for developers to issue offshore
bonds, and reduce their flexibility in using the issuance proceeds," said Cedric Lai, a
Moody's Vice President and Senior Analyst.
Previously, developers could use offshore debt issuance proceeds to refinance existing
debt, both onshore and offshore, and for general corporate purposes.
Many of the rated developers also had sizeable quotas granted by the NDRC, and as a
result offshore bond issuance for the 64 Moody's-rated developers grow 34.5% year-on-year
to $41.4 billion in 1H 2019.
"We expect the latest tightening measures will widen credit differentiation, with large
and financially strong developers set to further increase market share, supported by their
better access to funding and stronger sales execution," added Lai.
Refinancing needs remain high for the rated developers. Around $33.7 billion of onshore
bonds and $19.3 billion of offshore bonds will mature or become puttable in the 12 months
from July 2019. However, Moody's expects most of the rated developers will be able to
refinance their maturing offshore bonds through July 2020. (KL)