Increasing real estate developers file for bankruptcy in China as credit curbs tightened
Jul 26, 2019 (China Knowledge) - As China’s housing market regulator tightened credit curbs to clamp down on high debt levels, the country’s home builders have found it is harder to raise funds. So far, 274 China’s home builders have filed for bankruptcy, an increase of 50% from last year according People’s Court Daily.
Yin Yi Group (000981), ranking 215th among the top 500 real estate firms in China, filed for bankruptcy reorganization in June due to failure to repay RMB 300 mln in debt issued 3 years ago.
While companies announced bankruptcy now only account a small proportion of the estimated 100,000 developers in Mainland China, concerns over more defaults and bankruptcies in the future is growing.
This year a total of RMB 530 bln of some 500 domestic bonds raised by China’s developers will mature, up by 30% YoY. Counting in offshore debts, home builders have to refinance about USD 30 bln borrowings for the rest of this year.
The Chinese government aims to reduce risks in the financial system amid the slowing economy. China’s economic growth in the second quarter this year was 6.2%, the lowest record in the same period since 1992.
In May, the China Banking and Insurance Regulatory Commission launched new measures to ban direct financing to real estate firms that fail to secure all approvals necessary to start building or to secure all funding they need for a project. Later, indirect financing by equity investments and bond subscriptions to home builders were also banned.
Previously, developers were allowed to use offshore debt issuance proceeds to refinance both onshore and offshore existing debts. Furthermore, earlier this month the National Development and Reform Commission stipulates that new offshore bonds issued by real estate companies could only be used to replace medium- and long-term offshore debts maturing in the next year.
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