Chinese Real Estate Debt Draws Investor Attention

Heavy investor interest in bonds issued recently by China’s recovering real estate sector suggests that the worst could be over for developers.

Despite concerns at the beginning of this year that some developers were at risk of defaulting as a result of government tightening on the real estate sector, things have begun to look up. There has been a surge of interest in high-yield issuances by small to midsize Chinese developers in recent weeks, including bonds by Guangzhou R&F, and Road King Infrastructure and Kaisa Group.

For example, Kaisa Group’s $250 million offering, priced this week, received $3.9 billion of offers, with institutional investors taking up three-quarters of the bonds.

“Given that fixed income investors are traditionally more risk-averse than equity investors, the success of the recent bond issues suggests that the fundamentals of the China property sector are solid,” wrote Citigroup C +4.24% in a note.

That could also give a shot of confidence to equity investors, who have shied away from Chinese real estate stocks this year, says Citi. A campaign by Beijing to keep real-estate prices in check by limiting credit to developers and curbing speculative purchases forced many builders to cut prices and slow investment to improve cash flow, and has hurt the performance of property stocks.

Part of the reason for the turnaround in investor appetite for the real estate sector is the Chinese government’s recent loosening of the credit tap, as well as signs of improving property sales. Standard & Poor’s said in a note dated Aug. 30 that some companies managed to tide themselves over the tough times by successfully selling assets and refinancing debt.

Source: http://blogs.wsj.com/deals/2012/09/14/chinese-real-estate-debt-draws-investor-attention/