China’s Housing Companies Face Debt Ceiling in 2023

A commercial housing community is seen under construction in Nanjing, Jiangsu Province, China, on April 15, 2022.Costfoto/Future Publishing via Getty Images

Chinese property companies that survived the debt peak in 2022 may not be able to get through 2023. Meanwhile, although a research institute says that China’s housing companies have “seen the dawn,” most private real-estate companies still fail to issue bonds.

On Feb. 7, Guangzhou Times Holding Group Co. Ltd. announced that it would suspend trading in its bonds from the following day due to uncertainty over major issues. The company also announced on the same day that it will transfer nine corporate bonds (pdf) with a total issuance amount of 10.09 billion yuan ($1.5 billion) starting from Feb. 10. One of the bonds was issued in 2019, while the remaining eight were issued in 2020.

Guangzhou Time Holding Group Co., Ltd. is the main issuer of bonds of Times China Holdings Co., LTD. (01233.HK) in China. Times China was founded in Guangzhou and was once known as the “Transformation King of old residential areas” in the city. On March 19, 2017, Times China acquired the AH051028 block of Shigang Road in Guangzhou with a total price of 2.037 billion yuan (about $300 million) and a floor price of 55,000 yuan (about $8,250) per square meter, breaking the record of the highest unit price in the Guangzhou land market at that time.

Times China said in an announcement (pdf) in December 2022 that contract sales and working capital conditions in China’s real estate market had worsened since the second half of 2021, and that Times China was “not immune to this trend.”

On Dec. 30, the last working day of 2022, Times China issued a notice, saying that it expected to suspend payment of foreign debt repayment.

On Jan. 4, Times China issued an “inside information” announcement (pdf) concerning the suspension of payments on six U.S. dollar bonds. Two of the bonds will mature in March and July of 2023. The rest of the bonds will mature between 2024 and 2027. Meanwhile, trading in Times China’s offshore U.S. dollar bonds will be suspended from Jan. 5 until further notice.

Unfinished apartment buildings at a residential complex developed by Jiadengbao Real Estate in China's Guangxi Zhuang region, China, on Sept. 17, 2022. Eduardo Baptista/Reuters

In response to the group’s Feb. 7 announcement, the market widely believed that Times China’s debt ceiling will also move toward the open market debt restructuring.

Times China’s situation is by no means unique. According to an announcement issued by Yango Group Co., Ltd(000671.SZ) on Feb. 10, as of the day of the announcement, the total principal amount of debts due and unpaid (including loans from financial institutions, funds from partners, open market related products, etc.) is 46.018 billion yuan (about $6.9 billion). Of that, the total amount of unpaid debt principal related to guarantee matters has reached 21.743 billion yuan (about $3.3 billion). As for the public market, the total amount of unpaid principal on overseas open market bonds was $1.015 billion, while the total amount of unpaid principal on domestic open market bonds was 19.611 billion yuan (about $2.9 billion).

CRIC Securities Research Division, which is under E-house China (2048.HK), released its January sales figures for real estate companies on Feb. 2. According to its report “Top 100 Chinese real estate enterprises sales in January 2023,” China’s real estate enterprises will have a large-scale debt repayment tide in the first three quarters of 2023, of which more than 70 percent will be the debt of private housing enterprises.

Since 2021, as the amount of debt issued by Chinese real estate companies exceeds the amount due for a long time, the debt burden of real estate companies is getting heavier and heavier.

Data from CRIC shows that Chinese real estate companies will have 552.8 billion yuan ($83 billion) of maturing bonds in the first three quarters of 2023, up 6 percent year on year.

Most Private Real-Estate Companies Still Fail to Issue Bonds

On the same day that Guangzhou Times announced the suspension and transfer of corporate bonds, real estate research institution China Index Academy announced that after five consecutive months of no foreign bonds issued by real estate enterprises, “[we] finally see the dawn again,” because “Yuexiu and Jinmao took the lead in successfully issuing bonds on the Macao Gold Exchange.”

Both Yuexiu and Jinmao are controlled by well-connected CCP state-owned enterprises. Yuexiu refers to Yuexiu Property Company Limited (00123.HK), a subsidiary of Yuexiu Group. According to the structure chart on Yuexiu’s website, the Group is backed by the CCP’s Guangzhou Municipal Government and the Guangdong Provincial Department of Finance, with stakes of 89.1 percent and 9.9 percent respectively. Yuexiu Property is also the only real estate company with positive growth among China’s top 50 real estate companies in terms of contracted sales in the first half of 2022.

Jinmao refers to Shanghai Jinmao Investment Management Group Co., Ltd., (stock code:00817), which issued bonds totaling 2.05 billion yuan (about $310 million) on Micro Connect (Macao) Financial Assets Exchange Co. Ltd. on Jan. 19. Shanghai Jinmao’s controlling shareholder is China Jinmao, which is the sole operating platform for the property arm of Sinochem, a giant state-owned conglomerate. Shanghai Jinmao has a “strong shareholder background,” according to a 2022 tracking rating report by China Chengxin Credit Ratings Company.

Among typical real estate companies’ bond issuance statistics in January, as sorted out by China Index Academy, overseas bonds, in addition to Yuexiu and Jinmao, also included private company Wanda Real Estate Group, with an issuance amount of 2.68 billion yuan (approximately $400 million).

Chairman of Wanda Group Wang Jianlin in Beijing on Aug. 25, 2016. Fred Dufour/AFP/Getty Images

However, Wanda founder Wang Jianlin said several years ago, in the “Wanda Group 2015 Work Report,” released in January 2016, that “by the end of 2016, Wanda will cease to be a real estate enterprise and become a comprehensive enterprise. It is expected that by 2017, more than two-thirds of Wanda’s revenue and net profit will come from the service industry, achieving the transformation goal one year earlier than originally planned.”

In his 2015 report, Wang gave the reasons for Wanda’s transformation: “The law of real estate development around the world is that the real estate industry will shrink once the urbanization rate reaches 75 percent and the homeownership rate exceeds 80 percent. Wanda must transform in order to pursue long-term stable cash flow. Wanda will continue to do real estate, but will stabilize its scale of revenue at around 100 billion and will not expand the scale. [We’ll] rely mainly on other industries for growth.”

In addition, the average interest rate on Yuexu and Jinmao’s foreign debt issued in January was 4.00 percent, while Wanda’s average interest rate was as high as 11 percent.

Huang Lichong, president of Huisheng International Holdings Limited, said that investment banks have been evaluating bond issuance by Chinese real estate companies, but “at present, most private real estate companies are unable to issue bonds,” according to a Feb. 10 report by Yicai.com, an official Chinese news agency.