Chinese property trusts face record repayments next year as the real-estate market cools, fueling speculation among bond funds that more developers will collapse.
The trusts, which channel money from wealthy individuals to smaller builders — who have trouble obtaining financing elsewhere — must repay 203.5 billion yuan (US$32.7 billion) next year, according to Use Trust, a Chinese research firm. That is almost double the 109 billion yuan due this year. New issuance of the products slumped to 40.7 billion yuan this quarter, the least in more than two years, Use Trust data show.
“Trust loan defaults will rise substantially,” said Fiona Cheung, head of Asia credit at Manulife Asset Management’s (宏利投信) fixed-income team, which oversees US$44 billion globally. “It won’t be surprising if there are more collapses of China’s property companies. Those companies that suffer from weak sales, that bought land too aggressively last year funded by debt and that have poor access to capital markets will potentially experience cash-flow pressure.”
JPMorgan Chase & Co says the real-estate industry poses the biggest near-term risk to growth in the world’s second-largest economy after new home prices dropped in the most cities in two years last month. China’s banking regulator said on June 6 that it would monitor developer finances, a sign of concern that defaults may spread after the March collapse of Zhejiang Xingrun Real Estate Co (浙江興潤置業投資有限公司), a property developer south of Shanghai.
Prices fell last month from April in 35 of the 70 cities tracked by the government — the most since May 2012, China’s National Bureau of Statistics said on Wednesday. In Shanghai, prices slid 0.3 percent from April, the first fall in two years.
“It’s unavoidable that property trusts will have defaults this and next year,” said Yao Wei (姚偉), Hong Kong-based China economist at Societe Generale SA. “The industry has come to a turning point. The imbalance between supply and demand is so big that adjustments are needed.”
China is cracking down on the off-balance-sheet lending known as shadow-banking, including trust companies and wealth management products issued by banks.
The shadow-banking industry was worth 38.8 trillion yuan as of the end of last year, a Barclays PLC report estimated last month.
Concern that defaults could spread rose in January after a 3 billion yuan trust product called Credit Equals Gold No. 1, which had raised money for a failed coalminer, had to be bailed out days before maturing.
The yuan has fallen 2.8 percent against the US dollar this year, making it the worst-performing Asian currency. The yield on the benchmark 10-year government bond has dropped 52 basis points to 4.04 percent in the same period as investors seek safe havens.
Defaults on shadow-bank loans including trust loans by property companies will increase, with smaller builders particularly vulnerable, according to Frank Chen, head of China research at CBRE Group Inc, a commercial real-estate services firm based in Los Angeles.
“The key risk lies with small and medium-sized local developers which have limited access to bank lending and capital markets,” Chen said in Shanghai. “The slowdown in the residential market is more acute in lower-tier cities.”
Even as larger Chinese property companies are able to tap the international bond market to raise funds, offerings there have also declined. While offshore note issuance from developers in China and Hong Kong has more than doubled this quarter compared with the same period last year to US$6.1 billion, that is down 26 percent from the first three months of the year, Bloomberg-compiled data show.
“The decline in issuance is due in part to the weaker sentiment among investors,” said Franco Leung, an analyst in Hong Kong at Moody’s Investors Service. “Investors are seeing higher risk in the property sector than last year.”
Moody’s revised its credit outlook for Chinese developers to negative from stable on May 21. The Shanghai Stock Exchange Property Index, which tracks 24 developers listed in the city, has slumped 6.3 percent this year, exceeding the 4.2 percent decline for the Shanghai Composite Index.
Chen said while the central government may not officially lift restrictions on home purchases meant to prevent overheating of the market, local governments have been trying to provide support in a subtle way, Chen said.
Quanta Computer Inc (廣達) chairman Barry Lam (林百里) is expected to share his views about the artificial intelligence (AI) industry’s prospects during his speech at the company’s 37th anniversary ceremony, as AI servers have become a new growth engine for the equipment manufacturing service provider. Lam’s speech is much anticipated, as Quanta has risen as one of the world’s major AI server suppliers. The company reported a 30 percent year-on-year growth in consolidated revenue to NT$1.41 trillion (US$43.35 billion) last year, thanks to fast-growing demand for servers, especially those with AI capabilities. The company told investors in November last year that
United Microelectronics Corp (UMC, 聯電) forecast that its wafer shipments this quarter would grow up to 7 percent sequentially and the factory utilization rate would rise to 75 percent, indicating that customers did not alter their ordering behavior due to the US President Donald Trump’s capricious US tariff policies. However, the uncertainty about US tariffs has weighed on the chipmaker’s business visibility for the second half of this year, UMC chief financial officer Liu Chi-tung (劉啟東) said at an online earnings conference yesterday. “Although the escalating trade tensions and global tariff policies have increased uncertainty in the semiconductor industry, we have not
Intel Corp has named Tasha Chuang (莊蓓瑜) to lead Intel Taiwan in a bid to reinforce relations between the company and its Taiwanese partners. The appointment of Chuang as general manager for Intel Taiwan takes effect on Thursday, the firm said in a statement yesterday. Chuang is to lead her team in Taiwan to pursue product development and sales growth in an effort to reinforce the company’s ties with its partners and clients, Intel said. Chuang was previously in charge of managing Intel’s ties with leading Taiwanese PC brand Asustek Computer Inc (華碩), which included helping Asustek strengthen its global businesses, the company
Power supply and electronic components maker Delta Electronics Inc (台達電) yesterday said it plans to ship its new 1 megawatt charging systems for electric trucks and buses in the first half of next year at the earliest. The new charging piles, which deliver up to 1 megawatt of charging power, are designed for heavy-duty electric vehicles, and support a maximum current of 1,500 amperes and output of 1,250 volts, Delta said in a news release. “If everything goes smoothly, we could begin shipping those new charging systems as early as in the first half of next year,” a company official said. The new
RSS