China’s property developers have more than just big bond payments coming up

BEIJING — China’s struggling real estate developers face a growing number of repayment deadlines in the next few months.

Real estate giant China Evergrande finally defaulted earlier this month without immediately sparking the widespread contagion that global investors had worried about. But the amount of debt and bills the industry faces will only grow in coming months.

Chinese developers face $19.8 billion in maturing offshore, U.S.-dollar denominated bonds in the first quarter, and $18.5 billion in the second, estimates Nomura analysts Ting Lu and Jing Wang.

That first-quarter amount is nearly double the $10.2 billion in maturities of the fourth quarter, the analysts said in a note Tuesday.

Assuming the U.S. dollar holds steady at 6.4 Chinese yuan, the analysts said that including onshore, yuan-denominated bonds brings the total amount of maturing bonds to 191 billion yuan ($29.84 billion) in the fourth quarter, 210 billion in the first and 209 billion in the second.

“However, in view of potential RMB depreciation pressures and surging offshore funding costs amid rising credit defaults, we believe the repayment pressure for developers in the offshore bond markets could be even higher,” the Nomura analysts said.

The yuan, also called the renminbi or RMB, has strengthened against the greenback in recent weeks to trade around 6.37 yuan per U.S. dollar.

But going forward, Fitch Ratings said it expects the yuan to weaken due to a decline in overseas demand for Chinese products and divergence in China’s monetary policy from the U.S. The People’s Bank of China has lowered some key rates in the last week, while the U.S. Federal Reserve has been signaling more aggressive removal of stimulus.

Fitch expects the yuan to weaken to 6.7 versus the U.S. dollar by the end of next year, analysts said in a report Thursday.

The Nomura analysts pointed out another looming repayment deadline for Chinese real estate developers is deferred wages for construction workers, which are due before the Lunar New Year, which kicks off on Jan. 31.

“Unlike other sectors, the construction sector pays a majority of migrant workers’ annual compensation right before the end of each lunar year,” the analysts said. “Based on our informal survey, deferred wages account around two-thirds of their annual pay.”

The analysts estimate about 1.1 trillion yuan in deferred wages is owed to construction workers by private developers. The report noted that paying these construction workers in time is especially critical for developers this time around since the central government has emphasized that stability — including social stability — is a priority next year.

“Failing to pay deferred wages could be severely punished by both the central government and related local governments,” the analysts said, adding that “there is tremendous reputational risk for those developers and constructors that could not pay deferred wages in a timely manner, especially if social protests are triggered.”