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World NewsChina's property developers have more than big bond payments coming up

China’s property developers have more than big bond payments coming up

Migrant employees construct a scaffold on the development website of Huayang Commercial City Phase II in Huai ‘an City, east China’s Jiangsu Province, Feb. 7, 2021.

Costfoto | Barcroft Media | Getty Images

BEIJING — China’s struggling actual property developers face a rising variety of compensation deadlines within the subsequent few months.

Real property large China Evergrande lastly defaulted earlier this month with out instantly sparking the widespread contagion that international traders had nervous about. But the quantity of debt and payments the business faces will solely develop in coming months.

Chinese developers face $19.8 billion in maturing offshore, U.S.-dollar denominated bonds within the first quarter, and $18.5 billion within the second, estimates Nomura analysts Ting Lu and Jing Wang.

That first-quarter quantity is almost double the $10.2 billion in maturities of the fourth quarter, the analysts mentioned in a word Tuesday.

Assuming the U.S. greenback holds regular at 6.4 Chinese yuan, the analysts mentioned that together with onshore, yuan-denominated bonds brings the overall quantity of maturing bonds to 191 billion yuan ($29.84 billion) within the fourth quarter, 210 billion within the first and 209 billion within the second.

“However, in view of potential RMB depreciation pressures and surging offshore funding costs amid rising credit defaults, we believe the repayment pressure for developers in the offshore bond markets could be even higher,” the Nomura analysts mentioned.

The yuan, additionally known as the renminbi or RMB, has strengthened in opposition to the dollar in latest weeks to commerce round 6.37 yuan per U.S. greenback.

But going ahead, Fitch Ratings mentioned it expects the yuan to weaken as a result of a decline in abroad demand for Chinese merchandise and divergence in China’s financial coverage from the U.S. The People’s Bank of China has lowered some key charges within the final week, whereas the U.S. Federal Reserve has been signaling more aggressive elimination of stimulus.

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Fitch expects the yuan to weaken to six.7 versus the U.S. greenback by the tip of subsequent 12 months, analysts mentioned in a report Thursday.

Migrant employee wages

The Nomura analysts identified one other looming compensation deadline for Chinese actual property developers is deferred wages for development employees, that are due earlier than the Lunar New Year, which kicks off on Jan. 31.

“Unlike other sectors, the construction sector pays a majority of migrant workers’ annual compensation right before the end of each lunar year,” the analysts mentioned. “Based on our informal survey, deferred wages account around two-thirds of their annual pay.”

The analysts estimate about 1.1 trillion yuan in deferred wages is owed to development employees by personal developers. The report famous that paying these development employees in time is very vital for developers this time round for the reason that central authorities has emphasised that stability — together with social stability — is a precedence subsequent 12 months.

“Failing to pay deferred wages could be severely punished by both the central government and related local governments,” the analysts mentioned, including that “there is tremendous reputational risk for those developers and constructors that could not pay deferred wages in a timely manner, especially if social protests are triggered.”

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