Moody's: Offshore bond issuance activity in China's property sector slows

Moody's Investors Service says that offshore bond issuance activity significantly slowed down year-to-date (until 24 March 2015), amid concerns over challenging operating conditions in the China property market.

"Offshore bond issuance from our rated developers fell to $4.7 billion year-to-date from $9.2 billion during the same period last year," says Franco Leung, a Moody's Vice President and Senior Analyst.

"Furthermore, only six issuers tapped the offshore bond market to raise capital, while there were about 20 issuers in the same period last year," adds Leung.

Moody's believes that the slowdown was partly linked to investors' concerns over challenging operating conditions in the property sector, as well as the incident relating to Kaisa Group Holdings Ltd (Ca review for upgrade).

However, bond issuance has improved after muted activity in the offshore capital market in January 2015.

Moody's expects offshore bond issuance this year will be less compared with 2014, because of more attractive onshore financing costs following the recent rate cuts by the People's Bank of China, offshore investors' concerns on the challenging operating conditions in the property sector, as well as the uncertainties relating to the Kaisa incident.

Moody's analysis is included in its latest edition of China Property Focus, a monthly newsletter focused on credit trends within the Chinese property market.

Nationwide home sales will likely record a narrower year-over-year decline of 0%-5% compared to 7.8% in 2014 and 8.9% for the twelve-month period ended February 2015.

In the first two months of 2015, national sales declined by 16.7% year-over-year, while contracted sales for the 20-rated developers that Moody's tracks declined 22.3% year-over-year, which was larger than that of national sales. Moody's believes this was due to the high base for the tracked developers in the same period last year, and fewer new project launches by the tracked developers and less salable resources following their strong sales growth in December 2014.

However, Moody's expects its rated property developers will outperform the sector for the rest of 2015, as industry consolidation continues.

Residential home prices remained under pressure in February 2015. The number of cities that recorded year-over-year declines in residential home prices stayed at 69, unchanged from January 2015.
But the number of cities registering more than a 5% year-on-year decline in home prices increased to 52 in December 2014 from 38 in January 2014.

Moody's says prices are likely to remain under pressure over the next few months as developers continue to offer price incentives for their projects.

There were three negative rating actions and one positive rating action since the last publication.

The overall credit profile of Moody's rated portfolio is stable; 78.4% of the 51 rated developers had stable rating outlooks.