Gemdale Corporation (600383.SH) recently announced that it planned to issue 3 billion yuan of corporate bonds in 2018 and the funds it raises will be used to repay bank loans and matured debts. Zhongtian Financial Group Company Limited (000540.SZ) stated that it planned to issue 6 billion yuan of corporate bonds through private placement this year.
Statistics from market institutions show that the overall debt ratio of the real estate industry has reached a record high. According to data provider Wind Infor, the average debt ratio of 136 listed real estate companies reached 79.1 percent throughout the year of 2017, the highest level since 2005. Among the 136 listed real estate enterprises, there are 67 housing enterprises with liabilities exceeding 10 billion yuan, accounting for 49 percent of the total number; 37 housing enterprises with liabilities exceeding 30 billion yuan, accounting for 27 percent, among which Vanke and Greenland Holdings and Poly Real Estate saw their liabilities exceed 300 billion yuan.
According to the first quarterly report of real estate listed companies, as of the end of the first quarter of 2018, the debt ratio of the real estate industry was second only to banking and non-banking financial sectors. In the first quarter, among the 136 real estate development companies, there were nearly 40 companies with asset-liability ratios exceeding 80 percent, accounting for close to 26 percent, and nearly half of the companies saw their asset-liability ratio exceeded 70 percent.
Zhang Dawei, chief analyst of Centaline Property, said that based on the first quarter of this year, the profitability of real estate companies is good. However, as the impact of regulation gradually emerges, credit policy tightens, corporate capital costs rise, the profitability of real estate companies will be reduced. Some companies' capital chains begin to tighten.
Since 2017, the financial supervision has been gradually strengthened. A number of departments pledged efforts to regulate house purchase financing. Banks, trusts and stock exchanges have introduced policies to regulate the scale, channels, and methods of financing by real estate companies, tighten qualification verification and capital management for enterprises and continue to reduce leverage and risk in the real estate industry.
With stricter supervision, the scale of bonds issued by domestic real estate companies has shrunk dramatically in the past two years. According to the latest research report of the China Index Academy, over the past two years, the financing environment of the real estate industry was relatively loose. The condition of corporate bond issuance was relaxed, which promoted an explosive growth of bond issuance in the real estate industry. In 2015, the bond issuance in the real estate industry was 668.2 billion yuan in 2015, and jumped72 percent to 1.15 trillion yuan in 2016. Yet since the fourth quarter of 2016, as the bond issuance policy for real estate enterprises has tightened, the bond issuance by real estate companies shrank significantly in 2017. Wind Info data shows that in 2017, real estate companies issued a total of 85 corporate bonds, with a total scale of 94.08 billion yuan, a decrease of 88.17 percent from 795.55 billion yuan in 2016.
The relevant person in charge of the China Index Academy said that since 2018, real estate financing has entered the most severe regulatory period, and the financing status of real estate companies has become more diverged. With the strengthening of financial supervision, active deleveraging has become an important strategy for real estate enterprises to control risks. For example, Evergrande proposes that by the end of 2018, the asset-liability ratio dropped from 71.1 percent to about 60 percent, and by the end of 2019, it dropped to about 55 percent. According to industry insiders, real estate companies continue to take the initiative in de-leveraging, and the financial risks of the real estate industry continue to decline.
Translated by Coral Zhong