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Most bond sellers invest in property
November 25, 2011, Friday
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ALMOST 60 percent of Chinese companies that sold bonds in the past six months invest in the property market, undermining government efforts to limit real estate fundraising and curb inflation.
Seventy-four of 121 companies that filed bond prospectuses since May with Chinabond, the nation's clearinghouse, count one of their main businesses as real estate, have property subsidiaries or invest in the market.
Engine maker Zongshen Power Machinery Co said its parent company is involved in development. Kangmei Pharmaceutical Co, which makes medicine to treat high blood pressure, invests in real estate.
Cool the market
While property values dropped in 33 of 70 cities in October, the most in 2011, home prices rose 2.9 percent in the past year in Shanghai and 4.4 percent in Shenzhen. Premier Wen Jiabao said last month that the government should maintain measures to cool the market that have pushed developers' shares down 15.4 percent this year. Company borrowing costs fell to a 10-month low in November as average yields globally rose.
"Some corporates, even if they have some relationship with property investment, can still get the money," Xu Xiaoqing, the head of fixed-income research at China International Capital Corp said earlier this week.
"They can raise the money in the name of other uses."
Property investment growth, the most important driver of Chinese fixed asset investment, is expected to "fall sharply" in 2012, Credit Suisse Group AG said in a report published on Monday. Nationwide prices declined for a second month in October, down 0.23 percent, according to SouFun Holdings Ltd, a website operator for real estate in China.
"Regulators are determined to control the fund flow to the sector," Bei Fu, a Hong Kong-based analyst at Standard & Poor's said earlier this week. "The property market has really had a good time in the last decade or so, so a lot of companies, including a lot of state-owned enterprises, are into this business."
Zhejiang Geely Holding Group Co's main business, apart from the production of cars, includes "property investment," according to a prospectus for a bond sold on June 20.
"When you raise the money for a bond you are told the use of the capital but we cannot monitor the use," China International's Xu said.
Yields on Poly Real Estate Group Co's 4.3 billion yuan (US$ 676 million) in 2012 bonds rose to a record 8 percent on September 30, according to exchange data. The yield on developer Xinhu Zhongbao Co's 1.4 billion yuan 2016 note climbed to an all-time high of 8.9 percent on September 29, exchange data show.
Yields on Chinese corporate bonds dropped 50 basis points, or 0.5 of a percentage point, this month to a 10-month low of 5.162 percent on November 15, according to Bank of America Merrill Lynch indexes. Average yields on company bonds globally gained 5 basis points in the period, the indexes show.
Chinese government 10-year bonds yielded 3.603 percent as of 12:33pm yesterday in Shanghai, down five basis points. Yields on the debt have fallen 21 basis points in November, data compiled by Bloomberg News show.
The cost of insuring Chinese sovereign bonds against non-payment has more than doubled this year with five-year credit- default swaps increasing 37 basis points this month to 165 basis points yesterday, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.
The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Currency advanced
The yuan fell 0.07 percent to 6.3635 per dollar as of 12:21pm yesterday in Shanghai. The currency has advanced 3.8 percent this year, the best performance among Asia's 10 most-traded currencies, excluding the yen. Twelve-month non-deliverable forwards fell 0.12 percent to 6.3880 per dollar, a 0.4 discount to the onshore rate. In Hong Kong's offshore market, the yuan declined 0.04 percent to 6.3900.
A total of 122 out of 499 issuers that have provided 2010 financial statements explicitly state property or land management as part of their main businesses, HSBC Holdings Plc wrote in a November report.
"We think that revenues from property are significant enough to suggest that the property exposure of banks' loan books is understated by companies," HSBC analysts, led by Yi Hu, wrote.
The government should "firmly" maintain property market curbs, and local authorities should strictly implement them so that the Chinese people could see the effects in coming months, according to a government statement following a State Council meeting chaired by Premier Wen on October 29.
Core Business
Corporate bond sales rose 13 percent to 470 billion yuan this year, compared with 417 billion yuan for all of 2010, according to data compiled by Bloomberg. Outstanding bank loans to the property market were 20.3 percent of total bank loans as of September 30, the central bank said in its third quarter report on November 16.
China's State-owned Assets Supervision and Administration Commission said in February that 14 state-owned companies exited the property market last year after the government ordered those without real estate as their core business to leave the industry.
More than 20 other companies will exit the property market this year, Shao Ning, deputy director of the State-Owned Assets Supervision and Administration Commission, said at a February briefing in Beijing.
"The government needs to see some small developers go out of business and property prices go down to see that their measures are working," Dorris Chen, head of China research for BNP Paribas SA in Shanghai, said this week.
Seventy-four of 121 companies that filed bond prospectuses since May with Chinabond, the nation's clearinghouse, count one of their main businesses as real estate, have property subsidiaries or invest in the market.
Engine maker Zongshen Power Machinery Co said its parent company is involved in development. Kangmei Pharmaceutical Co, which makes medicine to treat high blood pressure, invests in real estate.
Cool the market
While property values dropped in 33 of 70 cities in October, the most in 2011, home prices rose 2.9 percent in the past year in Shanghai and 4.4 percent in Shenzhen. Premier Wen Jiabao said last month that the government should maintain measures to cool the market that have pushed developers' shares down 15.4 percent this year. Company borrowing costs fell to a 10-month low in November as average yields globally rose.
"Some corporates, even if they have some relationship with property investment, can still get the money," Xu Xiaoqing, the head of fixed-income research at China International Capital Corp said earlier this week.
"They can raise the money in the name of other uses."
Property investment growth, the most important driver of Chinese fixed asset investment, is expected to "fall sharply" in 2012, Credit Suisse Group AG said in a report published on Monday. Nationwide prices declined for a second month in October, down 0.23 percent, according to SouFun Holdings Ltd, a website operator for real estate in China.
"Regulators are determined to control the fund flow to the sector," Bei Fu, a Hong Kong-based analyst at Standard & Poor's said earlier this week. "The property market has really had a good time in the last decade or so, so a lot of companies, including a lot of state-owned enterprises, are into this business."
Zhejiang Geely Holding Group Co's main business, apart from the production of cars, includes "property investment," according to a prospectus for a bond sold on June 20.
"When you raise the money for a bond you are told the use of the capital but we cannot monitor the use," China International's Xu said.
Yields on Poly Real Estate Group Co's 4.3 billion yuan (US$ 676 million) in 2012 bonds rose to a record 8 percent on September 30, according to exchange data. The yield on developer Xinhu Zhongbao Co's 1.4 billion yuan 2016 note climbed to an all-time high of 8.9 percent on September 29, exchange data show.
Yields on Chinese corporate bonds dropped 50 basis points, or 0.5 of a percentage point, this month to a 10-month low of 5.162 percent on November 15, according to Bank of America Merrill Lynch indexes. Average yields on company bonds globally gained 5 basis points in the period, the indexes show.
Chinese government 10-year bonds yielded 3.603 percent as of 12:33pm yesterday in Shanghai, down five basis points. Yields on the debt have fallen 21 basis points in November, data compiled by Bloomberg News show.
The cost of insuring Chinese sovereign bonds against non-payment has more than doubled this year with five-year credit- default swaps increasing 37 basis points this month to 165 basis points yesterday, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.
The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Currency advanced
The yuan fell 0.07 percent to 6.3635 per dollar as of 12:21pm yesterday in Shanghai. The currency has advanced 3.8 percent this year, the best performance among Asia's 10 most-traded currencies, excluding the yen. Twelve-month non-deliverable forwards fell 0.12 percent to 6.3880 per dollar, a 0.4 discount to the onshore rate. In Hong Kong's offshore market, the yuan declined 0.04 percent to 6.3900.
A total of 122 out of 499 issuers that have provided 2010 financial statements explicitly state property or land management as part of their main businesses, HSBC Holdings Plc wrote in a November report.
"We think that revenues from property are significant enough to suggest that the property exposure of banks' loan books is understated by companies," HSBC analysts, led by Yi Hu, wrote.
The government should "firmly" maintain property market curbs, and local authorities should strictly implement them so that the Chinese people could see the effects in coming months, according to a government statement following a State Council meeting chaired by Premier Wen on October 29.
Core Business
Corporate bond sales rose 13 percent to 470 billion yuan this year, compared with 417 billion yuan for all of 2010, according to data compiled by Bloomberg. Outstanding bank loans to the property market were 20.3 percent of total bank loans as of September 30, the central bank said in its third quarter report on November 16.
China's State-owned Assets Supervision and Administration Commission said in February that 14 state-owned companies exited the property market last year after the government ordered those without real estate as their core business to leave the industry.
More than 20 other companies will exit the property market this year, Shao Ning, deputy director of the State-Owned Assets Supervision and Administration Commission, said at a February briefing in Beijing.
"The government needs to see some small developers go out of business and property prices go down to see that their measures are working," Dorris Chen, head of China research for BNP Paribas SA in Shanghai, said this week.
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