Fitch: China Property Developers to Favour Onshore Debt Issuance in 2H15
Issuance of onshore corporate bonds by Chinese developers reached a record CNY73.8bn by the end-1H15 since regulators reopened the domestic bond markets to the property sector in mid-2014, while that of offshore Chinese real-estate bonds has shrunk for three straight half-year periods to reach USD7.2bn.
Lower-rated Chinese property developers, especially those in the 'B' rating category on the international rating scale, reap the biggest cost advantage from issuing debt in the domestic bond market and may be more active in China's onshore bond market in 2H15 as they tap the abundance of idle liquidity. The cost gap between onshore and offshore markets could widen further if the US Federal Reserve raises its benchmark rates towards end-2015.
However, China's corporate bond market is at an early stage of development; its depth and track record has yet to become comparable to that of the offshore market and the risk of regulatory interventions is higher.