China’s property developers have a mountain of international debt to refinance this year, and tight lending conditions are raising the risk of defaults.
The real-estate firms need to repay up to $53.5 billion of offshore debt this year, a sharp increase from the $25.4 billion that came due in 2020, according to CreditSights, a bond-research firm. The bulk of the debt—$47.6 billion—is dollar bonds. The CreditSights figures include maturing bonds and a smaller sum of puttable debt, which has a longer maturity but which investors have the right to sell back during 2021.
At the same time, support from China’s powerful state banks is waning, profits are still recovering after tumbling in the early phase of the pandemic and regulators are taking a tougher stance on financial risk in the sector.
To further complicate matters, international defaults by Chinese borrowers, including some smaller real-estate firms, have grown more common in recent years. And a spate of defaults late last year by state-linked companies rattled investors in China’s huge onshore bond market, where property developers are also active borrowers in yuan.
While yields are high compared with many other investments, analysts and investors say the market is likely to draw sharp distinctions between healthier and weaker borrowers.