Recent developments surrounding Greentown China (03900.HK) have captivated market attention, particularly the company's announcement of a $500 million bond issuanceThis comes in the wake of increasing liquidity risks that have left many real estate firms struggling to secure financing through overseas channelsA stark shift has occurred where domestic debt has now become the primary conduit for raising fundsNotably, Chinese real estate companies had encountered almost complete closure of overseas financing opportunities over the past six months.

The resumption of overseas bond issuance by Greentown China has led some analysts to speculate if this could serve as a 'breaking the ice' moment for the industryHowever, an interest rate pegged at 8.45% also signals that the cost of this financing is substantialLulu Shi, Director of Corporate Ratings at Fitch Ratings for the Asia-Pacific region, emphasized that under the current market conditions, strong asset quality and sound operational health are prerequisites for private real estate firms to successfully issue overseas bondsGiven the prevailing cost disadvantages and the fundamental challenges faced by most private property companies, whether this move could be replicated across the sector remains uncertainMany firms, including state-owned enterprises, continue to adopt a wait-and-see approach.

Examining the overall financing landscape since the beginning of the year, private real estate players, previously grappling with substantial financing challenges, have shown signs of optimismJanuary witnessed a notable uptick in domestic credit bond issuanceMultiple industry insiders believe that while these firms will still face considerable debt pressures throughout the year, the tightening of new increases and an active management of existing assets could further enhance the financing environment, with the crucial caveat being dependent on sales performance.

Greentown China's dollar bond, with an impressive annual interest rate of 8.45%, marks a noteworthy point in domestic financing.

"It's not easy," remarked an institutional representative while discussing Greentown China’s resumption of overseas bond issuance.

On the evening of February 18, Greentown China publicly declared its intention to issue an additional $150 million in senior notes

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This issuance will align with its earlier announcement on February 13, detailing a principal amount of $350 million for original notes, thereby forming a cohesive series of bonds, all subject to an annual interest rate of 8.45%.

The financing total for Greentown China thus elevates to $500 million, with all bonds scheduled to mature in 2028. Notably, the issue price for the newly launched $150 million notes was set at 100.5% of the face value, yielding an issuance return rate of 8.258%. According to the announcement, this new bond issuance has helped reduce the company’s overall bond issuance costs.

This development is perceived in the market as a signal of improving conditions for overseas financing, bolstered by supportive policy measuresIn stark contrast, domestic firms had refrained from pursuing overseas bonds in the preceding six months.

"The last time a property company issued dollar-denominated bonds was last July, and since then, there had been no issuances between August and January of this year," noted Liu Shui, the Enterprise Research Director at China Index AcademySince August, avenues for overseas bonds had almost entirely shuttered, with only select high-quality enterprises managing to issue such bonds, predominantly state-owned firms like Yuexiu and Minmetals.

This raises questions about whether the overseas financing window is reopening for domestic property developersShi pointed out that the success of any single firm's dollar bond issuance does not encapsulate the industry's overall circumstances, indicating that replicability will require further observation.

She elaborated that a firm’s ability to recommence the issuance of overseas bonds is contingent on its operational health; conversely, the cost of overseas bonds remains significantly higher than domestic financingThis has led many bond-eligible firms, especially state-owned enterprises, to continue monitoring the situation. "However, since the latter half of last year, we have observed that some state-owned enterprises have begun reconsidering overseas financing options, primarily aiming to diversify funding channels and based on their assessments of the US dollar's trajectory," Shi added.

Considering an issuance cost of 8.45%, the financial burden of Greentown China's overseas bond issuance is evident

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Financial reports indicate that the company's weighted average interest cost for the first half of 2024 is a mere 4%, a decrease of 40 basis points compared to the same period in 2023. Notably, in July 2020, Greentown China made headlines by successfully issuing a $300 million senior note with a five-year maturity at a mere 5.65% interest rate; just a few months later, in October, it made another successful issue of a $300 million note with a rate of only 4.7%, setting a record low at the time for Greentown China's long- and medium-term dollar-denominated senior notes.

The company has announced that the funds raised from this latest issuance will be utilized for refinancing existing debts, which include ongoing tender offersSpecifically, on the same day it announced the release of the new dollar bonds, Greentown China indicated the initiation of cash tenders for purchasing $447 million (at a rate of 4.7%) in outstanding senior notes maturing in April, as well as $295 million (at a rate of 5.65%) maturing in July.

In contrast, in 2024, both Yuexiu Property and Minmetals Real Estate issued offshore bonds with interest rates ranging between 4% to 4.6%. According to a report by CRIC, due to the minimal number of property firms issuing overseas bonds in 2024, the statistical sample is smallConsequently, the overall financing cost for offshore bond issuance in the year has been recorded at 4.18%, significantly lower than in 2023. From 2019 to 2023, overseas financing rates for property firms stood at 7.60%, 7.46%, 5.99%, 6.61%, and 8.04%, respectively.

Market analysts believe that although issuing high-yield bonds showcases the fluidity of financing channels, it also inevitably intensifies future repayment pressuresFinancial data underscores that Greentown China's total sales in the first half of the previous year amounted to 126.5 billion yuan, reflecting a 5.7% year-on-year declineThe firm’s investment project sales accounted for 85.4 billion yuan, while equity sales reached 60.8 billion yuan, although still managing to secure a position ranked sixth nationally

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The company reported revenues of approximately 69.562 billion yuan in the same period, demonstrating an annual growth of 22.1%, with net profits attributable to shareholders recorded at around 2.045 billion yuan, exhibiting a decline of 19.6%. The firm’s cash reserves stood at 75.133 billion yuan, generating a historic high, with roughly 43.7 billion yuan remaining available after accounting for reserved and restricted funds.

Previously, on February 3, Greentown China had issued a profit warning, predicting that the net profits attributable to shareholders for the fiscal year ending December 31, 2024, could drop below 31.18 billion yuan in contrast to 2023, partially due to the overall slide in the real estate market and the firm’s proactive efforts to reduce inventory levels while adjusting inventory structuresThese factors could lead to enhanced asset impairment losses recorded for the 2024 financial year.

Amid supportive governmental policies, signs of recovery are emerging within the domestic bond market for private real estate companies, with rates now entering the “2 era.” On one hand, ongoing regulatory efforts have continued to lower the cost of financing for the real economy, allowing domestic bonds to serve as the main financing channel for current real estate firms, with decreasing issuance costsOn the other, firms that have struggled previously have begun exhibiting a more optimistic stance.

Data from the China Index Academy reveals that in January, four private and mixed-ownership property companies together issued 3.9 billion yuan in credit bonds, marking an increase of 1.46 billion yuan, or 60% growth compared to the same month the prior year.

For instance, Midea Real Estate Group successfully conducted its first phase of mid-term notes for 2025 on January 23, raising a total of 1.5 billion yuan over a five-year term with an issuance rate of 3.00%. New Hope Real Estate also succeeded in issuing 800 million yuan of five-year mid-term notes on January 13, with a nominal rate of 2.84%.

Looking back at 2024, data from CRIC illustrates that a total of 462.9 billion yuan was raised across 65 typical property firms, denoting a 31% year-on-year decrease, thus marking four consecutive years of decline

However, despite this drop, the overall indicative costs for domestic bond issuance have witnessed a remarkable downward shift, now categorized in the "2 era.”

For 2024, the funding cost for domestic bond issuance stands at 2.92%, continuing a decline of 0.54 percentage points from 2023, ultimately pulling down the overall new bond financing cost for property firms to 2.94%.

"The continuous reduction in the cost of domestic bond issuance derives from a relatively accommodative monetary environment in 2024, with LPR (Loan Prime Rate) persistently on a downward trendAdditionally, the majority of the issuers comprise state-owned enterprises and high-quality private enterprises, which possess significant advantages in financing," noted a report from CRIC's real estate research center.

Shi recognizes that amidst over 500 billion yuan in capital market debt obligations due in the year, real estate firms are still exposed to significant funding pressures through 2025. The effectiveness of supportive financing policies may take time to fully materialize, and consistent sales recovery remains fundamentalNevertheless, the gradual implementation of policies like special bond storage may assist firms in revitalizing existing assets; however, given local governments' inherent fiscal challenges, the scope and pace of these initiatives remain to be seen.

On a positive note, despite year-on-year declines in housing prices, recent data reveals signs of improvement on a month-on-month basisNewly released statistics from the National Bureau of Statistics show that in January, a higher number of cities among the 70 major and medium-sized urban areas observed increases in new home prices compared to the previous monthMoreover, first-tier cities have continued to experience rising prices in both new and second-hand housing markets, while second-tier cities have also seen their new home prices rise on a month-to-month basis for the first time since June 2023.

Shi concludes that as new home prices are significantly influenced by product structure changes, upcoming trends in the second-hand housing market should also be closely monitored to assess stability.

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