Translated by Andrew Vanburen from a Chinese-language piece in First Financial
CHINA MAY BE on the verge of having to start worrying about another runaway real estate market.
PRC’s listed developers are on a tear in Hong Kong raising funds for expansion and refinancing.
So who’s looking to raise how much, and how will this impact already high leveraging or macrocontrols from Beijing to curb over-fast growth and rampant speculation?
PRC-based real estate firms listed in neighboring Hong Kong are looking to the six million-strong population of the Special Administrative Region to help fund their activities even as they remained focused on the Mainland China property market where 1.3 billion require roofs over their heads.
All the money chasing PRC property listcos in Hong Kong of late has prompted the Hong Kong Monetary Authority (HKMA) to intervene at least seven times, using some 22 billion hkd to counteract the massive capital inflows and help stabilize the local Hong Kong dollar currency at levels consistent with its decades-old peg to the US dollar.
Of course, all this hot money isn’t chasing a cold bargain.
The returns on debt refinancing and corporate bond rates are themselves heating up of late which has resulted in all the new money chasing better payback rates.
Recently, the hottest trend has been for PRC-based developers listed in Hong Kong to float US dollar-denominated debt in the SAR to assist in their expansion plans and help to restructure their leveraging ratios.
Favorable interest and exchange rates have prompted such actions, with both sides taking advantage of a recently-strengthening Hong Kong dollar, a stronger yuan vis-à-vis the greenback and prime lending rates all at levels conducive to the campaign.
The recent QE3 announcement from Washington naturally did a number on the US currency’s value relative to important foreign currencies including the hkd and yuan.
One analyst says that the QE3 alone was the spark needed to ignite the wildfire-like enthusiasm for US-dollar backed debt trade.
Late this past week, SOHO China (HK: 410) announced it had completed the issue of one billion usd in preferred corporate bonds.
Within the Beijing-based developer’s debt issue tranche, 600 million usd of five year debt offers a coupon of 5.75%, while the remaining 400 million has a 10 year term with a 7.125% interest rate of return.
Meanwhile, Mainland Chinese property peer China Overseas Land & Investment (HK: 688) is offering the same amount in preferred bonds – one billion usd.
An industry insider said that COLI’s offer is at “investment grade” with a coupon of around 4%, representing one of the lowest rates on the books for PRC developers trolling the Hong Kong market for refinancing funds.
Perhaps what is less interesting about this phenomenon is not the various rates and debt issue amounts offered by the big names in Mainland China’s property market.
Instead, investors should be watching with great interest how long Mainland industry and monetary regulators will stand idly by on the sidelines as the country’s real estate giants pass the hat around in Hong Kong.
Beijing remains ever vigilant of a resurgent property bubble under its watch.
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