Mainland developer Jiayuan is 'stuck' in the build-to-borrow cycle

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3007391/mainland-developer-jiayuan-stuck-build-borrow-cycle?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | April 30, 2019 4:15 PM SGT
Mainland developer Jiayuan International was able to secure a credit line worth more than 43 billion yuan (HK$50 billion) to fund expansion, but industry players say the deal only highlights the predicament that forces China's property firms to keep borrowing.
Jiayuan, which co-developed the nano-flat project T Plus in Hong Kong, was granted its line of credit from four institutions, ­Baoshang Bank, Daye Trust, ­Guotong Trust and AVIC Trust.
The financing includes private placement notes amounting to US$225 million that will exchange all previously issued senior notes by Jianyuan due in 2019.
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"The credit lines from the trusts are probably for buying land and construction loans," said Tim Yip, vice-president of credit research at China Great Wall AMC (International) Holdings, an asset manager and investment bank.
Yip said firms were stuck in a cycle that forced them to keep borrowing and buying land. "Now mainland property companies face a big problem. If you do not enlarge your scale, you cannot borrow. The only way to enlarge the scale is to keep buying land non-stop," Yip said. "If you do not borrow, you cannot buy land. But every six months to one year, you face difficulty repaying the loans."
Shum Tin-ching, founder and chairman of Jiayuan, said the group "will acquire land or property development projects in the Yangtze River Delta and Guangdong-Hong Kong-Macau 'Greater Bay Area' through open auctions, merger and acquisition or joint ventures'.
"It will also seek to acquire quality property projects in provincial capitals and economically vibrant cities in China and the regions which are covered by the 'Belt and Road Initiative'."
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Jiayuan is most famous for its 356-unit T Plus in Tuen Mun, with flats as small as 128 sq ft priced at about HK$2.85 million. Only two units have been sold since it was launched in December.
The Hong Kong-listed shares of Jiayuan fell 3.5 per cent to close at HK$3.62 on Tuesday. The share is down 72.2 per cent from its level of HK$13, a day before it came under from heavy selling pressure on January 17.
Yip said high contracted sales might not really help developers repay loans. "Although it achieved high contracted sales last year, and the loans sound little, the money is in the hands of the project companies. It is very difficult to transfer or lend it to the parent company," he said, adding the final amount ­Jiayuan could get might not be as large as it said.
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"Even though banks and trusts approved credit lines, you have to get approval whenever you draw money," Yip said.
"I'll only trust it when the money is in. All the mainland property companies would tell us they have credit lines and financing plans. But then they need to issue US dollar-denominated loans because they cannot borrow in the mainland."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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