Chinese Developers May Win Relief From Falling Prices: ING

Source : The Business Times, July 10, 2008

Home prices rose 9.2 per cent in May, the slowest in eight months

(HONG KONG) Real estate developers in China may win relief from a shift in government policy towards stabilising property prices instead of depressing them, according to an analyst at ING Groep NV.

The People's Bank of China and government ministries held talks on stabilising the real estate market, the Economic Observer reported on July 5, citing a person it didn't identify.

Home prices rose 9.2 per cent in May, the slowest in eight months.

The CSI 300 Index of A shares traded on China's two exchanges lost 46 per cent this year, the second- worst-performing stock benchmark, data compiled by Bloomberg show.

'With recent corrections in A-shares and property prices, it's possible the government has begun to worry about the economic implications of crashing asset prices,' ING's Hong Kong- based analyst Steve Chow wrote in a research note on Tuesday.

Developers including China Vanke Co, Poly Real Estate Group Co, Gemdale Corp and Xinhu Zhongbao Co are raising funds selling yuan-denominated bonds and so-called trust loans that banks provide to companies with excess cash.

The China Securities Regulatory Commission allowed China Merchants Property Development Co to sell new shares.

Hong Kong-listed Agile Property Holdings Ltd has almost stopped buying land this year, recorded five billion yuan (S$995 million) of pre-sales in 2008, and raised 5.28 billion yuan selling a 30 per cent stake in a unit, ING's Mr Chow wrote.

Baida Group Co, a department-store operator, said on June 13 it agreed to lend 100 million yuan to Hangzhou-based real estate developer Cosmos Group Co for one year at an annual interest rate of 16 per cent.

Sunny Loan Top Co, another department-store operator in China, said in May it would provide 100 million yuan in a one-year loan to a developer in Jiaxing, eastern China, for 18 per cent interest.

Zhongshan, China- based Agile and Lai Fung Holdings Ltd, which is 20 per cent owned by Singapore's CapitaLand Ltd, are ING's top picks in the sector, the research note shows.

The spread, or extra yield investors demand above US Treasuries, to buy Agile's US$400 million 9 per cent bonds was down four basis points to 983, which is 31 basis points lower from the end of June, according to ING's prices.

A basis point is 0.01 percentage point. The stock advanced 7 per cent this month after losing 52 per cent in the first half.

The spread of Lai Fung's US$200 million 9.125 per cent securities maturing in 2014 has come down to 933 basis points from a record high of 1,201 on March 17.

Hopson Development Holdings Ltd has the tightest liquidity among developers rated from BB+ to BB-, three levels below investment grade, according to the ING report.

Hong Kong-based Hopson, whose 2007 profit more than doubled, recorded only three billion yuan of pre-sales this year while having an estimated nine billion yuan of land premiums to pay, Mr Chow wrote.

The spread of Hopson's US$350 million 8.125 per cent notes due in 2012 has risen 62 basis points this month, ING's prices show. -- Bloomberg