PROPERTY developers ended a month-long drought in the U.S. dollar high-yield bond market last week, taking advantage of renewed interest in the sector following the central bank’s interest rate cut.

    Junk-rated developers Logan Property, Yuzhou Properties and Sunac China Holdings all tapped the market, raising a combined US$900 million. Greenfield project developer Zhuhai Da Heng Qin is currently marketing a debut offshore yuan bond, while China Aoyuan Property is also gearing up to issue a Dim Sum deal.

    “Property companies will continue to access the offshore bond market on an opportunistic basis given the importance of pre-funding maturities,” said Charles Macgregor, Singapore-based head of Asia at Lucror Analytics, which has a stable outlook on the sector.

    “Our outlook is driven by a sense that the Central Government will continue to adjust policies and interest rates to maintain momentum.”

    Offshore bond sales from the Chinese property sector have slowed significantly since Agile Property’s bonds were hit in mid-October following the detention of the company’s chairman. Sentiment, however, has improved following the first interest rate cut in almost two years.

    Since the People’s Bank of China cut the lending rate by 40bp Nov. 21, Chinese real estate bonds have rallied 1 to 2 points, creating a positive backdrop for Chinese developers to tap the market.

    “China Property is the most credit-condition sensitive part of Asia high yield, and thus easing represents a golden opportunity to cut inventories and leverage,” Viktor Hjort, Hong Kong-based head of fixed income research at Morgan Stanley, wrote in a research note Nov. 26.

    Indeed, all three of this week’s issuers said they would use the proceeds to repay debt. Analysts said the developers are also likely to use the funds for land acquisition as land prices have fallen amid a continued slowdown in China’s property market.

    “The recent issuance rush by Chinese developers is driven by the need to pay down expensive domestic debt including trust loans and funding requirements for land acquisition,” said Kenny Wu, Hong Kong-based credit analyst at Citigroup.

    “Chinese developers have been holding off on land acquisition for the last six months and now they are looking to replenish land banks — due to softer land prices — for next year’s development.”

    Volumes of U.S. dollar-denominated high-yield new issues from Chinese developers so far this year have fallen to US$13.3 billion from 35 deals, lower than the full year volume of US$14.75 billion last year from 42 deals.

    Investors believe China’s housing sector is showing signs of bottoming out, helped by a series of stimulus measures including a relaxation on home purchase restrictions and easing of mortgage lending.

    Based on data from China Index Academy, average new home prices in China’s 100 major cities dropped 0.38 percent in November from October, the seventh month-over-month drop but a slight improvement from a 0.4 percent drop in the previous month. Sales volume in major Chinese cities continued to increase 3.7 percent in November from October. First-tier cities, in particular, saw sales volume jump 12 percent in November.

    Individual Chinese developers have also been reporting better sales in recent months.

    “Contracted sales numbers from various Chinese developers show that the sector is bottoming out, helped by a number of stimulus measures from the government,” said a Hong Kong based-hedge fund analyst specializing in China real estate bonds. (SD-Agencies)