Asia Credit:Monday Tidbits -a look at China property companies'landbank

Last year, Chinese developers have been overall very active in landbanking,and a recent article from CRIC showed data around top developers’ rankings interms of amount spent on landbanking and GFA acquired in 2017 (see Figures2 & 3). Given a poor onshore bond market environment with high yields andfurther government tightening of M&A loans used to buy land, we continue toexpect high supply from China HY developers in the offshore bond market. InJanuary 2018 alone, about USD4bn of China property HY USD bonds wereissued and HKD40.7bn of China property convertible bonds were priced.

    Looking at end-June, 2017’s landbank data revealed in the last earningsseason and each developer’s 2017 contract sales GFA, we derive at anestimated number of landbank years by using a simple assumption of anannual 20% YoY growth rate for contract sales GFA for the next several yearsfrom 2017 levels. Our analysis (shown in Figure 1) shows that Chinadevelopers with an estimated landbank years of below 3 years under thisassumption include Aoyuan, China Overseas Land, CIFI, Country Garden,Yuzhou, and Vanke. Those that have over 4.5 years of estimated includeJinmao, Fantasia, Guangzhou R&F, Kaisa, KWG, and Sino-Ocean. Generallyspeaking, we see those with below 3 years of landbank as under morepressure to acquire new land parcels or do M&A; having said that, by lookingat CRIC’s 2017 new landbank additions (see Figures 2 & 3), we can infer thatamong the companies with an estimated <3 years’ landbank, China OverseasLand, Country Garden, CIFI, Sunac, Yuzhou, and China Vanke were alreadymore aggressive in landbanking in 2H17 (up 93% on average over 1H17 GFAbought). Outside of those we have deemed with short landbank age, CentralChina, China SCE, Jinmao, Ronshine also acquired much landbank in 2H17. Asmentioned in our recent monthly report: Air Pocket published on 31 January2018, we expect the majority of the developers in the HY space to post mildlystronger EBITDA/interest coverage and lower total debt/LTM EBITDA at end-2017 HoH, with the exception of several companies under our coverageincluding Guorui, Guangzhou R&F, Ronshine and Hydoo.

    Given the active landbanking of many developers last year, we expect ourcoverage to continue to increase market share of property sales. While only ahandful of China developers have announced their official 2018 contract salestargets (e.g., Evergrande at RMB550bn for 2018 contract sales target; up 10%YoY; Ronshine at RMB120 bn; CIFI at RMB140bn, up 35% YoY), we expect ourHY coverage to post strong contract sales growth YoY on average.