(Yicai Global) Jan. 7 -- China’s real estate developers are scrambling to find new ways to raise funds as regulators tighten up on runaway debts in the sector. Since Jan. 1, 13 listed developers have announced bond sales worth USD5.6 billion, Yicai Global has learned. 

Guangdong province-based Country Garden, China’s second-largest property developer, plans to issue USD500 million of debt, bearing an annual interest rate of 2.7 percent, the lowest among the 13 companies. 

Of the other 12 firms, nine are offering interest of 3 percent to 5 percent, while three are offering 5 percent to 6 percent, with the smaller developers bearing the highest borrowing costs. The coupon rate of Modern Land China’s notes will reach 9.8 percent, while that of China South City will reach 10.75 percent. 

Developers are facing a liquidity problem, said Bai Wenxi, vice chairman of China Enterprise Capital Union. They are also trying to take advantage of current low interest rates, he added.

Chinese regulators announced a pilot scheme for the real estate sector last August known as the ‘three red lines.’ They stipulate that a developer’s debt-to-asset ratio must not exceed 70 percent after deducting advanced reception of payments, their liability-to-net worth ratios should not exceed 100 percent, and the ratio of their cash flow to short-term liabilities should not be less than 1. Firms that fail to meet these ‘red lines’ will not be able to increase their interest-bearing debts. 

The authorities included 12 large developers in the policy in August, including Country Garden, and more will be drawn in this year. 

Those firms that are not yet included will definitely use this window to find ways to raise funds, noted Ai Zhenqiang, chief researcher of inventory properties at Mingyuan Real Estate Research Institute, adding that they “must seize every possible chance for financing.”

China’s real estate sector now faces massive debt pressure due to the high leverage levels seen in the past few years. The value of developers’ expiring liabilities is expected to reach about CNY1.24 trillion (USD192.7 billion) this year, an annual rise of 36 percent and surpassing CNY1 trillion for the first time, figures from Beike Real Estate Research Institute showed. 

Editors: Tang Shihua, Tom Litting