Chinese real estate enterprises are in debt

Chinese property developers are facing a difficult time with debt piled up and many debts are due in the next few months.

A housing complex built by Evergrande in Huai’an City, Jiangsu Province, China. Photo: AFP

Bond debt will increase quarterly

Earlier this month, the Chinese real estate “debt bomb” Evergrande finally “exploded”. The breakdown of Evergrande $300 billion in debt doesn’t immediately spark a widespread crisis as international investors fear, but the debt and bills the real estate industry has to pay will grow in the coming months.

According to the estimates of two analysts Ting Lu and Jing Wang from Nomura Financial Group, Chinese property developers have to pay about 19.8 billion USD of bonds (issued in USD) maturing in the country. in the first quarter of 2022 and $18.5 billion in the second quarter.

Thus, the bond that Chinese real estate enterprises have to pay in the first quarter of 2022 is nearly double compared to the 10.2 billion USD of bonds maturing in the fourth quarter of 2021.

If the US dollar holds steady at 1 USD “eating” 6.4 RMB (yuan), Nomura analysts think that the total value of mature bonds (including yuan bonds) ) will amount to RMB 191 billion (equivalent to USD 29.84 billion) in the fourth quarter of 2021, increasing to RMB 210 billion in the first quarter of 2022 and RMB 209 billion in the second quarter.

“However, given the pressure to depreciate the yuan and the high cost of overseas investment amid rising credit indebtedness, we believe repayment pressure on property developers (China’s – BTV) on the foreign bond market could be even higher,” said Nomura analysts.

In the past few weeks, the yuan has been inching up against the greenback and is trading around 6.37 RMB to 1 USD. But in the future, Fitch Ratings predicts that the yuan will weaken due to a decline in the demand for Chinese goods by countries and the fact that China’s monetary policy is warping against the US. Specifically, Fitch predicts the yuan will weaken to 6.7 RMB to 1 USD by the end of 2022.

Last week, the Central Bank of China (PoBC) lowered its one-year basic lending rate, while the US Federal Reserve (Fed) signaled to accelerate the contraction of stimulus packages. economy in the face of high inflation pressure and will likely conduct 3 interest rate hikes in 2022.

More heavy debt

In addition to paying for maturing bonds, workers’ wages are also a burden on Chinese real estate enterprises. The deadline to pay the outstanding wages of construction workers in China will start on January 31, 2022, the time before the Lunar New Year.

“Unlike other sectors, the construction sector (in China – BTV) usually pays the majority of workers’ annual wages just before the end of each lunar year,” said Nomura analysts.

According to the results of an informal survey by Nomura, the wages owed by Chinese real estate firms account for about two-thirds of their annual salary. Nomura estimates this outstanding salary amounted to 1.1 trillion RMB ($172 billion).

Timely payment of wages for construction workers is an especially urgent issue for real estate businesses at the moment because Beijing is emphasizing that creating stability, including social stability, be the top priority for the coming year.

“The act of non-payment of arrears may be subject to the central government (China – BTV) and local governments. harsh punishment”, Nomura experts commented. They also said that the big risk for Chinese real estate developers and construction teachers is to lose credibility if they do not pay workers’ wages in time.