Funds see promise in dollar-beaten Chinese property bonds – Reuters

Buildings are seen at sunset in Beijing September 3, 2014. REUTERS/Jason Lee

SHANGHAI, Jan 24 (Reuters) – Battered dollar bonds issued by Chinese property developers are attracting domestic and global fund managers, some of whom are even considering launching new funds targeting bargains as Beijing caves in its concerted drive to clean the area.

Jupai Holdings Ltd, a Chinese wealth manager, plans to set up a fund to bet on such offshore Chinese property bonds.

“I think about half of the promoters’ dollar bonds were shot by mistake,” Jupai chairman Jianda Ni said.

“We will recognize the value of what others have thrown away as trash.”

The appeal of fallen angel investments in the real estate sector has grown on the heels of moves by China to ease some of the financial and regulatory constraints it imposed last year.

Borrowing restrictions imposed by major property developers have thrown China’s real estate sector into crisis, with China Evergrande Group (3333.HK) at the forefront. Once the top-selling developer in China, it holds around $20 billion in international bonds, all of which are considered to be in default.

A Markit iBoxx index that tracks China’s high-yield dollar real estate bonds (.IBXXAX13) fell 19% in January, following 2021’s 38% plunge.

The sale, which began in October with Evergrande, gathered pace as other developers such as Kaisa Group (1638.HK) and Shimao Group (0813.HK) defaulted or delayed bond payments.

Paula Chan, senior portfolio manager at Manulife Investment Management, also sees “pockets of opportunity” as the real estate sector emerges “from the bottom of the policy tightening cycle.”

“The high-yield space presents many opportunities, especially for struggling investors,” Chan said.

DOUBLE

China has rolled out several policies in recent months to stabilize the slowing economy, including lower mortgage rates, increased approvals for bond issuance by developers and government support for real estate acquisitions.

Fengshi Capital, a Chinese vulture fund manager, started buying junk bonds from developers in late 2021 and plans to double those bets this year, said a source with direct knowledge of the fund’s plans who declined to comment. be identified because the source was not authorized to speak to the media.

Ni, of wealth manager Jupai, said the company’s new fund would buy deeply discounted bonds that will mature soon, betting they won’t default. Such a strategy relies on a deep understanding of Chinese developers, as well as the character of their bosses, said Ni, who has worked in China’s property industry for more than three decades.

Ni declined to name targets, but said many undervalued bonds were between 70 and 80 cents on the dollar.

About half of dollar bonds issued by Chinese developers are trading below 80 cents on the dollar, according to an estimate from Essence Securities last week. Some bonds issued by major sponsors currently yield over 60%.

Mike Kelly, global head of multi-assets at $140 billion asset manager PineBridge Investments, said last week that the fund had started buying offshore Chinese property bonds and expected the measures from authorities aimed at stabilizing the market generate “extraordinary” returns.

Kelly declined to name companies. Having started buying at the end of December, he said he was still “in the accumulation phase”, picking up stocks at 75-85 cents on the dollar.

Jean Charles Sambor, head of emerging markets fixed income at BNP Paribas Asset Management, also expects a “significant easing” of Chinese property policies, and the asset manager is also building a long position in the debt of the country. sector. Read more

Reporting by Samuel Shen and Andrew Galbraith; Editing by Vidya Ranganathan and Muralikumar Anantharaman

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