China property bond offers to resume after pause

By Umesh Desai

HONG KONG (Reuters) - The flow of Chinese property companies tapping the offshore bond market has ebbed this year, but market watchers say it is only a hiatus and fund raising will continue on the back of solid housing demand in China.

China-focused property companies have raised only $650 million so far this year, compared with more than $2 billion in 2006. Chinese property firms alone accounted for over 80 percent of offshore issuance volumes from the country last year.

Bond offerings have been growing in recent years as Beijing tightened its grip on bank lending for construction to curb speculation in the rapidly growing property market.

Market watchers say that move and other government measures will help restore the sector's health by squeezing smaller players and spurring consolidation in the fragmented industry, benefiting bigger firms such as Shimao Property Holdings Ltd. (0813.HK: Quote, Profile, Research, Stock Buzz) and China Overseas Land and Investment Ltd. (0688.HK: Quote, Profile, Research, Stock Buzz).

And even though authorities have sought to cool down the red-hot sector with a series of measures, analysts do not anticipate those moves will sour appetite for financing among developers as demand for housing remains robust.

"Temporarily there has been a slowdown on back of the rate concerns in the U.S. but both on the demand and supply side I see solid growth," said Standard & Poor's analyst Jacphanie Cheung, who has rated Chinese developer credits, including Hopson Development Holdings Ltd. (0754.HK: Quote, Profile, Research, Stock Buzz) and Greentown China Holdings Ltd. (3900.HK: Quote, Profile, Research, Stock Buzz).

Concern about monetary tightening by global central banks and fear that stress in the U.S. subprime mortgage sector may spread have dimmed the lure of risky assets like emerging market debt.

In addition, early issues from Chinese property companies were from borrowers like China Overseas, rated BBB-minus, and Shimao Property, rated BB-plus, but this year has seen bond issues from lower rated corporates China Properties Group Ltd. (1838.HK: Quote, Profile, Research, Stock Buzz) and Lai Fung Holdings (1125.HK: Quote, Profile, Research, Stock Buzz), both rated B-plus.  Continued...