Property developers turn to asset sales, bonds as funding pressure mounts

Property developers turn to asset sales, bonds as funding pressure mounts

Slower market liquidity has made it more difficult for developers to improve cash flows from property sales, while expenditure on land, construction, interest payments and operations continues.

A view of the Quế Võ Industrial Park, developed by Kinh Bac City, in Bắc Ninh Province. — Photo kinhbaccity.vn

Property developers are stepping up asset disposals, project transfers and corporate bond issuance to bolster cash flows as slower market liquidity and higher financing costs put pressure on their financial resources.

Data from the Ministry of Construction showed that real estate inventory exceeded 39,000 units in the second quarter of this year, with inventories of individual houses increasing by more than 46 per cent.

Demand has also shown signs of greater caution, with nationwide interest in real estate falling by around 5 per cent month-on-month in May.

Slower market liquidity has made it more difficult for developers to improve cash flows from property sales, while expenditure on land, construction, interest payments and operations continues. Restrictions on real estate lending at some banks, coupled with rising interest rates, have added to funding pressure.

As bank credit becomes more difficult to access, property companies are seeking alternative funding channels, including corporate bonds, despite relatively high borrowing costs.

Data from the Hanoi Stock Exchange (HNX) showed that real estate companies offered four bond issues in August, raising nearly VNĐ4 trillion (US$153.5 million) at an average coupon rate of approximately 12.2 per cent per year.

Kinh Bac City Development Holding Corporation raised another VNĐ700 billion through three-year bonds, with a coupon rate of 12 per cent per year for the first interest period.

Asset sales

Alongside bond issuance, asset disposals and project transfers are being used to restructure funding sources.

Novaland's latest financial statements showed that the developer had completed the transfer of four assets with a combined value of VNĐ11.3 trillion, equivalent to around 72 per cent of its VNĐ15.6 trillion asset disposal plan aimed at providing additional resources for debt repayment.

Another five assets remain on offer.

For four of those assets, with a combined value of VNĐ3.9 trillion, the company has signed agreements in principle. However, these are framework agreements setting out the principal terms of the transactions and do not mean that the transfers have been completed.

Phat Dat Real Estate Development Corporation is also carrying out the transfer of its remaining stake in Dong Nai Riverside New Urban Area JSC to Burnaby Real Estate Development Company Limited.

An Gia Real Estate Investment and Development Corporation, meanwhile, has acquired additional stakes in companies associated with the Gió Riverside project.

The transactions come as property developers contend with the combination of sizeable inventories, cautious demand and continued expenditure requirements. 

Bizhub