Singapore’s Markets Still Love Chinese Developer Bonds

Much of the world may be holding its breath waiting for the next Chinese developer to fail, but investors in Singapore seem to still have a healthy appetite for debt from China’s real estate firms.

According to a story in Bloomberg, private banks quickly snatched up 79 percent of Central China Real Estate’s S$200 million (US$159.82 million) of notes when they were floated last week.

As China’s banking system has put on the lending brakes in recent months to cool down an overheated market, and after the March collapse of a developer in Zhejiang put some bond issues on hold, more debt sales seem headed to the tiny southeast Asian nation’s active financial markets.

The Henan-based developer is offering a 6.5 percent coupon on the three-year paper, which the Bloomberg story noted is less than the 8.5 percent rate on a US$400 million bond issue from the company last year. An account in the Financial Times said that the company was borrowing the funds to refinance a convertible bond due in August.

The bond issue took place less than one week before rating agency Moody’s downgraded China’s entire real estate industry to negative on Wednesday.

In the Bloomberg account, Melvin Lee, a Singapore-based senior vice president at Fullerton Fund Management noted that, “Foreign issuers are generally able to get a lower cost of funding from the Singapore bond market because there’s a lot of cash in the system waiting to be deployed.”

Singapore has long served as a regional banking hub for southeast Asia’s wealthy, as its stable politics and developed financial system have attracted the savings of wealthy individuals and companies in Indonesia, Malaysia, and other nearby nations.

Credit Environment May Be Improving

While the slowdown in China’s real estate market and tightened credit from the country’s state-owned banks have driven more developers offshore for their funding needs, there have been signs in recent weeks of some softening of government policy.

Earlier this month the People’s Bank of China instructed the nation’s banks, most of which can be seen as directly reporting the central authority, to prioritise the granting of mortgages, particularly to first time buyers. The unavailability of mortgage financing has played a significant role in the dramatic slowdown in real estate transactions this year.

And just this week a government economist suggested that the central bank should lower the reserve requirements for the nation’s banking system, a sign that the government may be willing to pump more cash into the economy.