Migrant workers build a scaffolding on the construction site of Huayang Commercial City Phase II in Huai ‘an City, East China’s Jiangsu Province, February 7, 2021.
Cost photo | Barcroft Media | Getty pictures
BEIJING – China’s struggling real estate developers are facing an increasing number of repayment deadlines over the next few months.
Real estate giant China Evergrande finally defaulted earlier this month without immediately triggering the widespread contagion that global investors had worried about. But the amount of debt and bills the industry faces will only grow in the coming months.
Chinese developers are facing $ 1[ads1]9.8 billion in maturing offshore bonds in US dollars in the first quarter, and $ 18.5 billion in the second, Nomura analysts Ting Lu and Jing Wang estimate.
This amount in the first quarter is almost double the $ 10.2 billion maturity in the fourth quarter, analysts said in a note on Tuesday.
Assuming the US dollar stays stable at 6.4 Chinese yuan, analysts said that including onshore, yuan-denominated bonds bring the total maturity of bonds to 191 billion yuan ($ 29.84 billion) in the fourth quarter, 210 billion in the first and 209 billion in the other.
“However, given the potential RMB depreciation pressure and rising offshore financing costs amid growing credit default, we believe that repayment pressure for offshore bond market developers may be even higher,” said Nomura analysts.
The yuan, also known as the renminbi or RMB, has strengthened against the dollar in recent weeks to trading around 6.37 yuan per US dollar.
But going forward, Fitch Ratings said they expect the yuan to weaken due to a decline in foreign demand for Chinese products and deviations in China’s monetary policy from the United States. The People’s Bank of China has lowered some key interest rates in the past week, while the US Federal Reserve has signaled more aggressive removal of stimulus.
Fitch expects the yuan to weaken to 6.7 against the US dollar by the end of next year, analysts said in a report on Thursday.
Migrant worker salary
Nomura analysts pointed out that another looming repayment deadline for Chinese real estate developers is deferred wages for construction workers, which fall due before the lunar new year, which begins on January 31.
“Unlike other sectors, the construction sector pays a majority of the migrant workers’ annual compensation just before the end of each lunar year,” analysts said. “Based on our informal survey, deferred pay makes up about two-thirds of annual pay.”
Analysts estimate that about 1.1 trillion yuan in deferred wages are owed to construction workers by private developers. The report noted that paying these construction workers on time is particularly critical for developers this time around since the central government has emphasized that stability – including social stability – is a priority next year.
“Failure to pay deferred wages can be severely punished by both the central government and related local authorities,” said analysts, adding that “there is a huge reputational risk for those developers and designers who could not pay deferred wages on time, especially if social protests are triggered. “