When a bellwether Chinese property developer reportedly sought buyers for $12 billion of assets to repay debt this year, the move sparked hopes of a liquidity boost for the nation.
Only three of 34 assets listed by the company have been sold since January.
Some of the luxury builder's prime assets drew interest, but buyers have become more cautious about acquisitions in response to the crisis, according to a person familiar with the discussions. The price gap is often impossible to bridge, this person and another person familiar with the market said. Both refused to be identified talking about private information.
The trend shows that more bad news is coming for those trying to recover billions of dollars. Since an initial flurry of deals in January, cautious buyers and reluctant sellers are struggling to agree to terms, undermining China's attempt to engineer a soft landing after years of debt-fueled expansion.
Mergers and acquisitions by Chinese developers in the first quarter fell to the lowest since the start of the epidemic, according to data compiled by Bloomberg. The figures do not include transactions smaller than $50 million. The slowdown in housing sales continued in April, adding to the liquidity troubles.
China's property acquisitions have waned due to the home-market slump.
The source is Bloomberg.
I haven't seen any developer lift itself out of distress through M&A, according to Shen Chen, a partner at Shanghai Maoliang Investment Management. Both sides refuse to budge.
Chinese regulators see asset sales as a key step to easing the liquidity crisis, and deal financing is one of the few concrete measures of support from Beijing.
People familiar with the matter said last month that the People's Bank of China held a meeting with about 20 major banks and asset-management firms seeking looser requirements on a range of financing, including lending for property acquisitions. Limits on borrowing by major developers were loosened in December.
According to public announcements, developers and financial institutions plan to raise at least 217 billion yuan in acquisition bond sales and credit lines this year. The amount to be generated is small compared with the $90 billion in local and offshore notes that developers need to repay or refinance this year.
It is not clear how much of the money raised through M&A bonds will be used to buy assets. China Merchants Shekou Industrial Zone is a relatively stable builder of industrial parks whose bonds trade at par. The money will be used to pay down debt. The Overseas Chinese Town Enterprises Co. had a 1.5 billion yuan medium-term note that was used to replace an earlier loan.
There is little appetite to use scarce capital to buy assets in the current environment because no property developer feels comfortable about its liquidity.
Some prime assets have been sold at deep discounts, reducing incentives for developers without immediate payment pressure to sell. It might be better to hold out for a market rebound.
Sunac China sold its stake in the project to Beijing Capital Land at a steep discount, according to people familiar with the matter. In April, Guangzhou R&F Properties agreed to sell its stake in a property project in London at a loss.
A person familiar with the matter said that Hyatt on the Bund in the center of Shanghai was sold by Shimao for 20% less than the appraised value. The previous month, Shimao recognized a loss of HK$770 million from the sale of a stake in a Hong Kong residential project.
Requests for comment were not immediately responded to by Sunac and Shimao.
Developers may sell at a discount or even take a loss to get quick cash but this may force them to part with quality projects according to Tan Shengying, fixed-income analyst at HFT Investment Management.
Selling assets could be considered costing the developer's cash flow in the future.
Buyers prioritize their own financial security by limiting deals to individual property projects, such as joint ventures in which they already hold a stake. China Overseas Land and Investment bought stakes in a Guangzhou project from Agile Group and Shimao.
It would be great news if state-owned firms were to buy a 20-30% stake in private property companies. It's too late for most privately owned developers.
With help from Charlie Zhu, Emma Dong, and others.
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