Developers in distress draw interest of loan buyers

By Bloomberg (China Daily) Updated: 2014-11-18 07:33

Potential homebuyers inspect models of residential property at an expo in Henan province. [Photo by Geng Guoqing / Asianewsphoto]

Many waiting for 'large cracks to occur' in nervous mainland real estate market

Buyers of distressed loans are watching China's property market closely as debt soars and growth falters.

Nomura Holdings Inc and Bank of America Corp said they will pay more attention to Chinese developers in 2015, having profited from trades in India, Australia, South Korea and Indonesia.

"There's been a lot of nervousness around the real estate sector in China," said Andrew Tan, Nomura's head of secondary trading for loans and special situations in Asia ex-Japan.

"We've seen some selloff in terms of some of the bigger names in the loan space which, typically, you don't see being offered in the market. They are at high-yield, stressed levels."

The number of publicly traded developers with liabilities exceeding equity in China has jumped to 136 out of 334, or more than 40 percent, from 57 in 2007, according to data compiled by Bloomberg. China's leaders are discussing lowering next year's economic growth target amid falling home prices and rising inventory.

"A lot of people are waiting for large cracks to occur in China, but it's hard to pin down exactly when that will happen," said Kevin Tham, a managing director of Bank of America's global credit and special situations group in Hong Kong.

"Our key themes in 2015 will revolve around deploying capital into more defensive, senior secured loans, while we wait for the next wave of distressed situations to come through."

China's property industry accounted for 16 percent of the country's 7.7 percent economic expansion last year, according to the World Bank.

A survey of economists by Bloomberg News last month showed an expectation for a growth target of about 7 percent in 2015. Home sales shrank 10 percent in the first nine months of this year, with unsold units equal to 14.4 months of contracted sales, Moody's Investors Service said in a Wednesday note.

Non-performing loans at Chinese lenders jumped by the most since 2005 in the third quarter to 766.9 billion yuan ($125 billion), the China Banking Regulatory Commission said on Saturday. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier. The People's Bank of China has injected 769.5 billion yuan into its banking system over the past two months, stimulus that has done little to ease financing costs for borrowers, according to UBS AG.