China developers’ debt risks persist

China's Country Garden had some rare good news for the cash-squeezed property sector with an offshore debt repayment on Tuesday, but a closer look reveals just how much developers may still struggle to access capital, developers and analysts said.

China's largest developer by sales said it repaid its 4.75 per cent dollar bonds with outstanding principal totalling $625 million. The payment was due on Tuesday.

The transaction was made possible in part by the government's aggressive support measures late last year for the crisis-hit property sector, which accounts for one-fourth of the world's second-largest economy and has been hobbled by souring demand and mounting debt defaults.

But China's developers face an even more daunting wall of offshore bond maturities in 2023, and the support policies are so far largely limited to a relatively few healthy "performing" developers, with broader improvements in sector sales and liquidity expected only towards the second half of this year.

The next few months could therefore find more developers starting to miss offshore debt obligations, while many developers that have already defaulted will continue struggling to pin down a restructuring plan for viable long-term repayments.

"The prices of the (performing) developers' upcoming dollar bonds are trading close to par, suggesting that investors remain sanguine about their near-term liquidity," said CreditSights, a credit researcher under Fitch.

"However, few have provided detailed refinancing plans, so there is still a chance that negative surprises could emerge."

This year, Chinese developers' maturing offshore debt will total $141 billion, up from $120.7 billion in 2022, Refinitiv data showed. The figure represents the amount at issue and does not reflect redemptions and defaults.

Country Garden, the largest offshore debt issuer among performing Chinese developers with $10 billion worth of dollar bonds outstanding, had access to funds not available to most of the developers that must repay those debts.

Since November, it has completed two rounds of share placements in Hong Kong, raising HK$8.6 billion ($1.10 billion). It also secured a $280 million loan from the Hong Kong unit of Industrial and Commercial Bank of China and an HK$5.1 billion interest-free loan from its controlling shareholder Yang Huiyan.