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Asia Credit:Recent updates in China property

类型:投资策略  机构:德意志银行   研究员:Karen Kwan  日期:2017-08-21
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High-beta single-B or unrated China property companies’ bonds saw weaknessin the past few weeks

    Some high-beta single-B and unrated names of the China property HY sectorhave been weak over the past few weeks up until last week. We have seensome mild increase in bond prices for this segment thusfar this week. MarkitiBoxx USD China Real Estate HY index’s ASW widened by 104bp since June 1(up to yesterday). Like we mentioned in our Monday Tidbits: HY Calls & Curvesreport dated August 14, some China property curves look steep to us,including the Evergrande curve. We maintain our Buy on Evergrande 2023s(ask price: 97.6, YTW: 8.0%), Kaisa 2022s (ask price: 100.375, YTW: 8.4%) andSunac 2022s (ask price: 99.5, YTW: 8.1%) within the highly leveraged Chinaproperty names. Key downside risks are tighter-than-expected property policyand lack of de-leveraging. YTD, the China property IG and HY sectorscombined saw a high gross issuance of USD34.5bn (if we strip out exchangedamounts of Evergrande and Kaisa bonds, that would put the number atUSD29.0bn). For further discussions on the sizable puttable amount of onshorebonds next year, please refer to the China property section of our Asia CreditMonthly: A volatile carry dated July 21.

    Land sales remained robust in China

    Land sales remained robust: Most of the HY China property developers wecover continue to be very active (e.g., Agile, Guangzhou R&F, Ronshine, andEvergrande). Despite our expectations of property sales growth moderating,we attribute the still solid land market environment to a few factors: 1)relatively low inventory month (available for sale inventory/trailing 12Maverage monthly GFA sold) was only about 8x at end-June using CREIS andCRIC data, 2) overall China property industry consolidation has beenhappening quickly this year, and some developers fear a loss in market share ifthey do not replenish their landbank after strong sales in 1H17, and 3) most donot expect a correction in prices in the land market. As a result, we expect landsales to remain solid in 2H17 unless there is a drastic change in credittightening which we do not expect. We also expect there to be a windowopening in the onshore corporate bond market for some China developers totap the onshore bond market again in 2H17. So far, we have seen only a fewnon-SOE names being able to issue in that market (e.g., Agile) but we expectthere to be more companies being able to tap the onshore corporate bondmarket later this year.

    China’s overall deleveraging efforts likely to continue

    As China’s overall deleveraging efforts are likely to continue in the remainderof this year, we expect the average cost of borrowing of most developers atend-2017 to be higher or stable compared to that at end-June. Already, wehave seen a notable increase in interest rates on on-shore trust loans, whichare also increasingly becoming difficult to obtain.

    We expect lackluster Aug contract sales

    The China property HY names that we track (refer to Fig 2) saw a simpleaverage 37% MoM drop in July contract sales value, but still up 22% YoY. Overthe first seven months of the year, China developers have locked in over 60%of their full year contract sales target. Nationwide property sales growthmoderated in July with sales volume up only 2.0% YoY and sales value +4.8%YoY. Having said that, just examining the residential sales volume, it wasflattish YoY at 101mn sq m for July. We expect August residential propertysales to be lackluster given low seasonality and still tight policy environment.

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