Buildings are seen at sunset in Beijing September 3, 2014. REUTERS/Jason Lee
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SHANGHAI, Jan 24 (Reuters) – Run-down dollar bonds being issued by Chinese property developers are luring domestic and global fund managers, some even planning to launch new funds targeting bargains as Beijing eases its concerted effort, to lure the sector to clean .
Jupai Holdings Ltd, a Chinese asset manager, plans to set up a fund to bet on such offshore Chinese real estate bonds.
“I think about half of developer dollar bonds were accidentally slaughtered,” said Jupai Chairman Jianda Ni.
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“We will see the value in what others have discarded as trash.”
Fallen angels’ investment appeal in the real estate sector has increased after China sought to ease some of the financial and regulatory restrictions it imposed last year.
Restrictions on borrowing by major real estate developers have plunged the Chinese real estate sector into a crisis spearheaded by China Evergrande Group (3333.HK). Once China’s top-grossing developer, it has around $20 billion worth of international bonds, all of which are deemed defaulting.
A Markit iBoxx index tracking China’s high-yield real estate dollar-denominated bonds (.IBXXAX13) plunged as much as 19% in January after plummeting 38% in 2021.
The sell-off, which began with Evergrande in October, accelerated 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 “hot spots” as the real estate sector moves “off the bottom of the monetary tightening cycle.”
“The high-yield space offers many opportunities, especially for distressed investors,” Chan said.
DOUBLE
China has taken several measures in recent months to stabilize the slowing economy, including lowering mortgage rates, increased permits for developer bond issuance and government support for property purchases.
Fengshi Capital, a Chinese Vulture fund manager, started buying junk bonds from developers in late 2021 and is considering doubling those bets this year, said a source with direct knowledge of the fund’s plans, who declined to be identified , since the source was not known authorized to speak to media.
Ni of wealth manager Jupai says the company’s new fund will buy heavily discounted bonds that are due to mature shortly and bet they won’t default. Such a strategy is based on a deep understanding of Chinese developers and the character of their bosses, said Ni, who has worked in China’s real estate sector for more than three decades.
Ni declined to give targets but said many undervalued bonds are in the 70 to 80 cents per dollar range.
About half of the dollar bonds issued by Chinese developers are trading below 80 cents on the dollar, according to an estimate by Essence Securities last week. Some bonds issued by major developers are currently yielding over 60%.
Mike Kelly, global head of multi-asset at $140 billion money manager PineBridge Investments, said last week that the fund had started buying offshore Chinese real estate bonds and expects the authorities’ actions to stabilize the market ” would deliver “extraordinary” returns.
Kelly declined to name companies. Having started buying in late 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 market fixed income at BNP Paribas Asset Management, also expects a “significant easing” of Chinese real estate policy and the asset manager is also taking a long position in the sector’s bonds. Continue reading
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Reporting by Samuel Shen and Andrew Galbraith; Edited by Vidya Ranganathan and Muralikumar Anantharaman
Our standards: The Thomson Reuters Trust Principles.
source https://www.bisayanews.com/2022/01/24/funds-see-promise-in-battered-chinese-real-estate-dollar-bonds/
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