Foreign Banks Offer Hands in Property Financing

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  When the Chinese banks closed the door of financing for the property companies, the foreign banks may offer their hands.
  
  Some property companies said that they were not short of money even when confronted with the narrowed financing channels. The experts thought that there was no big capital stress for the property companies from January to May, but the shortage in money gradually came out in that period. With the deepened control, the property companies may be short of money in the future without smooth financing channels.
  When confronted with the danger of having no money, some property developers began to turn to the foreign banks.
  
  Phenomenon: Developers Denied Shortage in Money
  
  On July 7, Huawei Property issued a public report, saying that the company’s board of directors planned to cancel the non-public offering due to the drastically dropping stock prices which was caused by the changes in economic environment and policy changes.
  Huawei’s cancellation of stock issuance plan didn’t surprise the experts. The intensive control in the property brought about allied examination to the property companies’ financing through stock market by the Chinese Securities Regulatory Commission and the Land and Resources Bureau. Therefore, when the stock market went bearish, some property companies’ stock prices fell below added-issuance price.
  In June, China Merchants Property issued the report about the cancellation of the directional added-issuance. The decreasing stock prices forced the company to decrease the added-issuance price from 28.12 yuan to 20.6 yuan last August but still failed to stop the stock price from falling below the added-issuance price level. Then China Merchants Property had to cancel the plan of added-issuance. Then, Shimao Property then followed suit by declaring the cancellation of added-issuance plan worth 1.7 billion yuan (USD 251.003 million).
  However, though haunted by the blocked financing channel, some property companies still said that they were not short of money because of their self-owned capital, trust financing and the other methods.
  An insider from Shimao Property said that the company has a variety of financing ways to provide enough capital for the corporate operation. In addition, the company has close relationship with financial institutions, banks and trust companies.
  Shimao Property published a report on May 20 that it had realized the trust financing of 603 million yuan (USD 89.05 million) for a project in Suzhou. But the interest was 7.1% in the first year and will be increased to 7.8% in the second year.
  Vanke’s added-issuance plan worth 11.2 billion yuan (USD 1.65 billion) has not been approved. Xiao Li, vice executive president of Vanke, said that Vanke still had 17 billion yuan (USD 2.51 billion) in hand. The company can survive two or three years without any other financing ways.
  
  Inquiry: Worsening Capital
  Sufficiency
  
  When talking about the property companies’ declaration of “not being short of money”, Nie Meisheng, president of the Chamber of Property, All-China Federation of Industry & Commerce, said: “(The property companies) should not insist that they are not short of money. Actually, most of them are suffering the worsening of capital sufficiency.”
  Nie Meisheng listed out the data from January to May to show the decrease of capital sufficiency of the property companies. According to her, the proportion of self-owned capital against the investment was 49.4% in 2009 and increased to 70.3% this May. Last year, the property companies had the self-owned capital amounting to 145.2 billion yuan (USD 21.4 billion) and the value reached 208.2 billion yuan (USD 30.75 billion) in May 2010. Meanwhile, the capital sufficiency decreased dramatically: the value in March was 1:1.67 and decreased to 1:1.42 in July.
  Tu Lilei, property analyst from Qilu Securities, said that forcing them to lower the prices by squeezing the capital chain of the property companies is one of the aims of government control. It can be measured out whether the property companies are shouldering the stress of lowering house prices.
  Tu Lilei said that the property companies used foreign capital amounting to 16.9 billion yuan (USD 2.49 billion) and the amount of self-owned capital was 954 billion yuan (USD 140.9 billion) from January to May. The loans from domestic banks in that period reached 554.9 billion yuan (USD 81.9 billion), up 57% year on year. “The data in the first five months showed that the amount of credit loans was still quite large so that the property companies had smaller capital stress as well as less pressure on lowering house prices.”
  Nevertheless, the calculation told that the property companies still needed 1.522 trillion yuan (USD 229.2 billion) this year. Apart from the surplus capital amounting to one trillion yuan (USD 147.7 billion) last year, the property companies has to raise 522 billion yuan (USD 77.09 billion), most of which can be realized by withdrawing the distribution fund. Presently, the average net profit margin of property companies in China is 20%. Therefore, the property companies have to realize the sales amount of 2.61 trillion yuan (USD 385.5 billion). In the first five months of this year, the property companies saw the sales amount of 1.576 trillion yuan (USD 232.8 billion).
  Tu Lilei said that the property companies had sales stress, but it was not fatal. If the trade volume keeps decreasing, the property companies may lower the house prices even more in the fourth quarter to realize the capital balance.
  A financial directorof a shareholding bank said that the property companies already accumulated a certain amount of cash through their sale in the first half of this year, but they still have the problem to meet the demand of investment and development in the second half year especially when the sales situation of that year is forecasted not to be optimistic. He said that the change of property industry in China would start with the breakdown of small- and middle-sized enterprises and the mergers and acquisitions of property companies will frequently happen.
  
  Move: Property Companies Turn to Foreign Banks
  
  Various clues proved that the property companies began to search for new financing channels because of capital stress brought by the narrowed previous financing channels. One of the most obvious moves is to turn to foreign banks for help.
  On June 25, Aoyuan Group got the loans of 500 million yuan (USD 73.8 million) from Nanyang Commercial Bank and Macau Branch, Bank of China. The capital will be used for the regular operation of Aoyuan Group, said an insider. Then, Hong Kong-based Henderson Land Development Company Limited signed a 5-year contract of lending loans with 18 local and international banks, whose total value was 13.25 billion yuan (USD 1.96 billion). Another property developer – Agile – also borrowed 800 million HK dollars from the Bank of East Asia. New World Development also got 700 million HK dollars from a 4-year credit contract from a foreign bank.
  Another big property developer Longfor said on April 28 that it had got credit loans of 2.15 billion HK dollars from an international financial institution. Actually, the well-established property companies in China, including EverGrand, Agile, Kaisa and Renhe Commercial Holdings Company Limited, all launched their own overseas financing plans. Longfor’s success has set a good example for these companies.
  
  Survey: IPO in A-share Market Not Available Yet
  
  Most of the property companies’ financing relies on the yuan-denominated A-share market, but there is no obvious clue of turning around in the market. After the restart of initial public offering (IPO) in June 2009, only Wuhan Langold Real Estate successfully went public in the A-share market. Many property companies, like Longfor and EverGrand, chose to go public in Hong Kong. When the government control became more intensive, the property companies began to crave for the IPOs. However, the restrictions in A-share market were still there and the Hong Kong stock market responded slowly to these property companies’ financing demand, some property companies have already given up their plans of IPO in Hong Kong. These companies have to endure great test to survive this difficult period.
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