汇丰银行-中国-信贷策略-中国房地产HY 2020年展望-2019.12.10-23页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO MAINLAND CHINA China property HY issuance has reached USD63bn YTD,in line with our USD61.5-63.5bn 2019 forecast published in July Bonds turning scarce:we forecast USD30-35bn of China property HY bond supply in 2020e,implying an 85-95%y-o-y decline in net issuance to USD3-8bn,from USD50bn in 2019e Select high-beta B bonds from established names present value;open buy calls on CSCHCN,FTHDGR,MOLAND;buy COGARD,RONXIN,ZHPRHK;close EVERRE buy calls The goldilocks in 2019:Record issuance alongside continued spread tightening 2019 has proven to be an exceptionally good year for investors in China property HY,with an average year-to-date total return1 of 13%,exceeding our 5-10%yearly total return forecast in China Property HY:2019 Outlook:Climbing the wall of fear,12 December 2018.The year has been characterised by record USD HY supply,which totalled USD63bn year-to-date versus USD38bn in 2018(recall that we revised up our issuance forecast twice during 2019 first in February to USD38-40bn from USD8-10bn(see China Property HY:Hat trick in the making,19 February),and then in July to USD61.5-63.5bn(see China Property HY:While the quota lasts,18 July,and Figure 1 and 2).Property sales have been resilient,with signs of policy loosening towards the end of 2019;we believe there is room for further loosening in 2020e.Structurally,we believe China property USD HY bond supply has peaked with the National Reform and Development Commission(NDRC)enacting Rule 778(i.e.发改办外资2019778 号)on 12 July,which limits future USD bond issuance for offshore debt refinancing.We estimate there are USD6bn of legacy NDRC USD bond issuance quotas outstanding(i.e.approved prior to July),down from our 18 July estimate of up to USD15bn.We forecast USD30-35bn gross issuance in 2020e,down from USD63.5bn in 2019e,with net issuance down to USD3-8bn in 2020e,from USD50bn in 2019e._ 1 Total return is defined as the sum of capital return and accrual return in USD.10 December 2019 Keith Chan Head of Corporate Credit Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4522 Roanna Chau Associate,Credit Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 3941 7186 China Property HY Fixed Income Credit China 1.Record HY issuance in 2019e 2.coupled with yield tightening Source:Bloomberg,HSBC estimates Source:Bloomberg,HSBC 010,00020,00030,00040,00050,00060,00070,0002004200520062007200820092010201120122013201420152016201720182019e2020eUSDmChina property USD HY issuance3.04.05.06.07.08.09.010.011.0Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19China property BB yieldChina property B yield%2020 Outlook:Catch me when you can Fixed Income Credit 10 December 2019 2 Tight debt financing access,and hence,constrained capex A further dissection into the year-to-date China property USD HY trend shows a notable decline in net issuance in 2H19e versus 1H19.The trend is even more profound using monthly gross and net issuance statistics(see Figure 3 and 4).This,in our view,reflects the authoritys tightened policy stance for developers incremental USD debt financing since July,as signified by the implementation of the NDRC Rule 778.The decline in monthly USD HY bond supply is met with revived interest from investors for bonds in the primary market(see Figure 5),despite absolute yields trending lower.China property HY primary market transactions are more than four times covered on average in 2019,up from three times in 2018,with select HY transactions being more than 10 times covered(i.e.USD400m ROADKG21 in January,10 x covered;USD400m GRNCHperp-NC3 in January,14x covered;USD208m RONXIN21 in February,15x covered;USD LOGPH23 in February,10 x covered;and USD200m RONXIN22 in April,11x covered).5.Demand for China property HY bonds reviving to 2017 level Source:Companies,HSBC Improvement in debt leverage profile in 2H19e Coupled with tight debt financing access onshore via trust financing(Caixin,15 July 2019)and limited incremental debt financing availability in the onshore bond market,we have witnessed a notable decline in land purchases since 3Q19(see Figure 6 and 7).To be specific,known land purchases by China property developers with offshore bond market presence were down by 15%y-o-y in 10M2019 to RMB1.4trn(USD200bn),per our estimate.During the same period,35 China property developers we monitor reported a 20%y-o-y increase in contracted sales to RMB5.3trn(USD755bn).We expect improvement in debt leverage metrics for them in 2H19e.0.02.04.06.08.010.012.0Jan-17Feb-17Mar-17Apr-17May-17Jun-17Jul-17Aug-17Sep-17Oct-17Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19HY new issues oversubscription ratioAverage 3.China property USD HY bond net issuance down by almost 60%h-o-h in 2H19e 4.China property USD HY bond issuance front-end loaded in 2019 Source:Bloomberg,HSBC estimates Source:Bloomberg,HSBC -10,000-5,00005,00010,00015,00020,00025,00030,00035,00040,0001H162H161H172H171H182H181H192H19eNet issuanceUSDm02,0004,0006,0008,00010,00012,000Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19Gross issuanceNet issuanceUSDm 3 Fixed Income Credit 10 December 2019 6.Incremental debt financing availability is largely non-existent in onshore bond market 7.Constrained capital expenditures on land since 3Q,given tight liquidity access Source:Wind,HSBC estimates Source:Companies,HSBC Five key themes for 2020 Theme 1:USD HY bonds turning scarce issuance dropping notably to USD30-35bn in 2020e from USD63.5bn in 2019e;size of space to reach USD150bn We forecast a notable decline in USD bond supply from China property HY developers in 2020e,with gross issuance normalising to levels seen in 2016-18.The sharp decline in USD bond supply is driven by our expectation of the NDRC maintaining its policy stance in limiting developers incremental offshore debt financing access via Rule 778,as the authority needs currency flexibility on the back of trade negotiation uncertainties(note homebuilders and LGFVs are the two sectors that face greater foreign currency asset liability mismatch than peers).We forecast USD30-35bn of gross issuance in 2020e.Taking into account USD25bn of maturity and USD2bn of callable bonds which we deem as likely to be early redeemed in 2020e,this translates into net supply of USD3-8bn,implying 85-95%decline in net supply versus USD50bn in 2019e.At the high-end of our issuance forecast,we expect the size of the China HY property USD bond space to be slightly shy of USD150bn by end-2020e,a slight increase versus USD140bn at present(see Figure 8 and 9).Table 10 shows our issuance forecast for Asian HY and IG corporate in 2020e,with a sharp decline in Asian corporate HY net supply driven by a decline in mainland China issuance.We expect China HY developers to issue longer-dated bonds,i.e.7NC4/10NC5 for BB-rated benchmark,5NC3 for strong B-rated and 3NC2 for weak B-rated names(see Figure 11 and 12).8.China property USD HY net issuance to plummet in 2020e versus 2019e 9.Growth of China property USD HY space coming to a stall in 2020e Source:Bloomberg,HSBC estimates Source:Bloomberg,HSBC estimates -10,000010,00020,00030,00040,0001H162H161H172H171H182H181H192H19eNet issuance of onshore CNY bonds by China developers withoffshore HY market presenceUSDm equivalent01002003004005006007001Q093Q091Q103Q101Q113Q111Q123Q121Q133Q131Q142Q141Q153Q151Q163Q161Q173Q171Q183Q181Q193Q19RMBbnKnown land acquistions for developers in offshore bond universe-10,000010,00020,00030,00040,00050,00060,00070,00020152016201720182019e2020eGross issuanceNet issuanceUSDm0%10%20%30%40%50%60%050100150200250300350201120122013201420152016201720182019e2020eUSDbnChina property USD HY bonds outstandingAsian HY corporateChina property%Asian HY Fixed Income Credit 10 December 2019 4 10.China property HY:driver for 60%y-o-y decline in 2020e Asian corporate HY net issuance USDm 2019e gross issuance 2019e net issuance 2020e gross issuance(Low end)2020e gross issuance(High end)2020 maturity/call 2020e high-end net issuance 2020e high-end net issuance vs 2019e net issuance Asian Corporate HY Mainland China 90,500 64,393 43,000 53,000 35,780 17,220 -73%-Mainland China property HY 63,500 49,833 30,000 35,000 27,277 7,723 -85%-Mainland China LGFV HY 13,000 7,761 3,000 6,000 1,630 4,370 -44%-Mainland China other HY 14,000 6,798 10,000 12,000 6,873 5,127 -25%India 7,075 6,323 6,000 7,000 763 6,237 -1%Hong Kong 1,105 781 1,500 2,000 1,498 502 -36%Indonesia 2,475 1,578 3,000 4,000 1,831 2,169 37%Others 8,020 4,153 6,000 7,000 2,906 4,094 -1%Asian corporate HY issuance 109,175 77,228 59,500 73,000 42,778 30,222 -61%Asian corporate HY redemption 31,948 42,778 42,778 Asian Corporate IG Mainland China 63,147 30,860 50,000 55,000 30,900 24,100 -22%-Mainland China LGFV 17,082 11,332 10,000 12,000 6,800 5,200 -54%-Mainland China central SOEs 23,639 9,291 25,000 26,000 17,450 8,550 -8%-Mainland China local SOEs 9,000 6,262 8,000 9,000 3,400 5,600 -11%-POEs 13,426 3,975 7,000 8,000 3,250 4,750 19%Hong Kong 11,150 3,599 8,000 9,000 4,674 4,326 20%Korea 6,650 3,490 7,000 8,000 4,750 3,250 -7%Singapore 2,150 400 0 500 0 500 25%India 7,213 4,813 6,000 7,000 1,000 6,000 25%Others 9,190 3,946 9,000 10,500 2,388 8,112 106%-Indonesia 5,675 5,529 7,000 7,500 338 7,162 30%-Malaysia 1,000 (2,000)1,000 1,500 2,050(550)NA-Thailand 1,515 439 1,000 1,500 0 1,500 242%-Philippines 0(1,021)0 0 0 0 NA-Taiwan 1,000 1,000 0 0 0 0 NA Asian corporate IG issuance 99,500 47,108 80,000 90,000 43,712 46,288 -2%Asian corporate IG redemption 52,391 43,712 43,712 Asian corporate gross issuance 208,675 139,500 163,000 Asian corporate net issuance 124,336 53,010 76,510 Source:Bloomberg,HSBC estimates 11.Notable drop in Asian HY gross corporate issuance expected in 2020e 12.Duration of China property HY new issues to lengthen in 2020e versus 2019 Source:HSBC Note:Markit iBoxx USD Asia ex-Japan China Real Estate High Yield Index Source:Markit,HSBC Figure 13 and 14 show that for China corporates/non-bank FIs(NBFIs)and China property developers that have come to the USD bond market since June 2019,more than 80%and 85%of the issues,respectively,have NDRC bond issuance quota approved on or prior to May 2019.40,00050,00060,00070,00080,00090,000100,000110,000120,00020182019e2020eMainland ChinaIndiaHong KongIndonesiaOthersAsian HY corp.issuance(USDm)2345Jan-14Jun-14Nov-14Apr-15Sep-15Feb-16Jul-16Dec-16May-17Oct-17Mar-18Aug-18Jan-19Jun-19Nov-19Years to Maturity/Expected Remaining Life 5 Fixed Income Credit 10 December 2019 Theme 2:Liquidity access via onshore bond issuance could potentially loosen Incremental debt financing is not available in onshore bond market for China property developers.In particular,according to Bloomberg news dated 5 June 2019,certain underwriters were asked by regulators not to tap unused quotas for selling bonds or asset-backed securities for developers that have been aggressive in bidding for land.Coincidentally,we note a few names have not been issuing in onshore bond markets since 5 June 2019(see Table 15),whereby HY property names that are still issuing after 5 June include Beijing Capital Land,China Aoyuan,China South City,China SCE Group,Central China Real Estate,Country Garden,Fantasia,Greentown,Logan Property,Modern Land,Powerlong,Road King,Ronshine,Shimao,Times China,Xinhu Zhongbao and Zhenro Properties(see Appendix for individual China property HY names onshore bond issuance in year-to-date 2019).Nonetheless,gross issuance activity has been muted,whereby monthly net issuance for China property names with offshore bond market presence dipped into negative trajectory in recent months(see Figure 16 and 17).15.Select names turned quiet in onshore bond market issuance in 2019 Company Note Agile Group,CIFI,KWG Group,Sunac China No onshore bond issuance in 2019 Gemdale,Risesun Real Estate,Seazen Holdings No onshore bond issuance since Mar 2019 Yango Group,Yuzhou Properties No onshore bond issuance since Apr 2019 Guangzhou R&F,Hengda Real Estate(China Evergrande)No onshore bond issuance since May 2019 Source:Companies,Wind,HSBC 16.Onshore China property bond issuance peaked in 2016 17.Monthly net issuance of China property bonds dipped into negative trajectory Source:Wind,HSBC Source:Wind,HSBC 02550751001251Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q194Q19eRMBbnOnshore bond issues for China property names with offshore HYUSD bond market presense-20-100102030Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19Jul-19Sep-19Nov-19RMBbnNet issuance of onshore CNY bonds by China developers withoffshore HY market presence 13.NDRC maintains tight policy stance towards Chinese corporates USD issuance 14.China property developers depleting legacy quotas since June 2019 Source:Companies,HSBC Source:Companies,HSBC 0%5%10%15%20%25%Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19NDRC USD/EUR bond quota approvals(for Chinese issuers thatcame to market since Jun-19)0%5%10%15%20%25%Dec-18Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19NDRC USD bond quota approvals(for Chinese developers thatcame to market since Jun-19)Fixed Income Credit 10 December 2019 6 On the other hand,we draw comfort from put ratios(i.e.early redemption of bonds upon holders exercise of put options)of China property bonds normalising to the 20-25%level seen in 2017 as opposed to 65%in 2Q18(see Figure 18).We also draw comfort from the onshore bond maturity profile for China property developers with offshore bond market presence being reasonably lengthened(see Figure 19).Assuming 25%of put-able bonds get early redeemed,we are looking at onshore bond refinancing requirements of RMB203bn(USD29bn)in 2020e,taking into account RMB169bn(USD24bn)of bond maturities and RMB133bn(USD19bn)of bond puts.Please refer to the Appendix for bond maturity/put requirements in 2020e by name.Theme 3:Continuous buying from Hong Kong corporates for Treasury management According to annual reports and public filings to the Stock Exchange of Hong Kong,we note a number of Hong Kong-based listed corporates are actively involved in China property USD HY bond investments,with ten listed Hong Kong landlords/conglomerates holding USD5.5bn worth of China property HY bonds,per our estimate using publicly available information(see Table 20).We note these Hong Kong corporates,via private banks,are the stabilising force in the China property HY bond market,a