In the wake of the Spring Festival in early 2025, a significant shift in China's real estate sector has been marked by a breakthrough in overseas financing. On February 14, Greentown China Holdings Limited made headlines when it announced the issuance of a US dollar bond set to mature in 2028, with an interest rate of 8.45% and a principal amount of $350 million. This move signifies not just a recovery in the sector but also a renewed confidence among financial institutions regarding the risks associated with investing in Chinese real estate. The enthusiastic response to this initiative is evident, as the amount subscribed surpassed $1.6 billion, prompting Greentown to issue an additional $150 million, bringing the total issuance to $500 million on February 18.

Looking back, one can trace the history to January 12, 2023, when Dalian Wanda issued its last overseas debt — a $400 million bond with a staggering interest rate of 11% over two years. This event closely mirrored the tightening measures imposed on China's real estate sector. Fast forward two years, and we find Greentown returning to the overseas bond market after a three-year hiatus. Researchers, such as Song Hongwei from the Same City Research Institute, emphasize that the ability of Chinese real estate firms to issue US dollar bonds indicates ongoing restoration and positive trajectory within the market. They also suggest that a lower risk perception from financial stakeholders plays a crucial role in this development.

From a financial perspective, US dollar bonds remain attractive as investment products, presenting good allocation value. These bonds not only open new avenues for corporate financing but also bolster market confidence and enhance the credit ratings of the companies involved. Greentown's increasing market share in the real estate sector, its ascending brand presence, and the endorsement from state-owned major shareholders support its credibility for issuing US dollar bonds. Furthermore, Greentown continues its investment expansions, reinforcing the need for broadened financing channels for corporate progression.

However, the spotlight on Greentown’s latest bond issuance inevitably revolves around its 8.45% interest rate—perceived as rather high when compared to the company's domestic bond rates. In 2024, Greentown adjusted multiple domestic bond rates, yielding interest rates between 3.34% and 4.13%. For instance, as of February 17, the company announced an increase of 23 basis points on the “20 Greentown 04” bond, raising its rate for the period from March 31, 2025, to March 30, 2027, to 4.10%. In contrast, while domestic bonds carry a rate advantage, the costs associated with channeling these funds overseas to service US dollar obligations can be substantial.

An industry insider revealed that if Greentown were to use domestic bond funds for paying off its US dollar debt, it would need to navigate through channels such as Qualified Domestic Institutional Investor (QDII), cross-border Total Return Swaps (TRS), and Southbound Transfers—each carrying its own cost implications. The QDII channel incurs a cost of about 1% to 1.5%, while the cross-border TRS can cost between 3.5% to 4.5%. The Southbound Transfer mechanism, although lacking explicit cost details, has strict limits concerning annual and daily quotas.

This reveals a crucial reality: utilizing domestic bonds to repay overseas debts may not necessarily prove cheaper than directly issuing offshore bonds. Examining costs related to local government financing vehicles (LGFVs) is equally telling. The interest rates for domestic bonds issued by LGFVs vary due to factors such as regional and issuing entity characteristics, with some 2025 LGFV bond rates falling between 1.79% and 3.48%. For instance, the Hangzhou City Construction Investment Group recently issued two bonds with rates of 1.70% and 1.79% for professional investors. When placed alongside Greentown’s rates, it becomes evident that Greentown's domestic bond rates remain relatively higher.

Moreover, with respect to the issuance of overseas bonds, LGFVs face an even steeper cost structure influenced by varying factors. Between 2023 and July 2024, the average nominal interest rate for newly issued three-year LGFV RMB bonds hovered around 4.84%. By 2024, average issuance rates for similar bonds often exceeded 5.5%. The added complexity of intermediary agency fees and channel expenses can reach between 2% and 4.5%, reflecting the high costs tied to overseas funding.

Despite the seemingly high costs of Greentown's new US dollar bond issuance, its broader significance rests in sustaining its overseas financing capabilities. Notably, in 2024, only a handful of companies such as Yuexiu Property and Minmetals Real Estate ventured into issuing offshore RMB bonds, with their coupons ranging from 4% to 4.6%. Song Hongwei reiterates that the undertaking of US dollar bonds can significantly hinge upon external economic conditions, particularly the US monetary policy, exchange rates, and interest levels. In comparison, domestic bond incentives primarily align with state policy directions and the credibility of companies within their respective sectors. The motivations behind issuing dollar bonds also include increasing financing avenues, lowering costs, and enhancing corporate profiles.

A deeper analysis reveals that while Greentown’s foray into the US dollar bond market suggests improving credit evaluations by foreign financial institutions, caution remains a prevailing sentiment among market investors. High interest rates tend not to induce optimism about current real estate dynamics, fostering a cautious approach centered around the risk-return equation in investment decisions.

Upon historical reflection, one can observe Greentown's fluctuating fortune within the bond market. During 2006 and 2007, shortly after its public listing, the firm partook in aggressive bond issuance. This culminated in a harrowing near-default in 2009, wherein the company had to offer buybacks at significant discounts to regain footing. Greentown's return to the dollar bond market in 2013 was noteworthy, and by November 2019, the interest on its US dollar debt had not exceeded a rate of 5.95%. January 2022 marked a turning point when Greentown issued a three-year SBLC (Standby Letter of Credit) bond amounting to $400 million at a historically low interest rate of 2.3%.

Fast forward to 2025, the maturity of Greentown’s current USD bonds reflects its financial evolution, marking a decisive shift from SBLC to pure credit bonds issuance. Analysts speculate that the interest rate from Greentown's recent bond sales may serve as a significant reference point for other state-owned enterprises and large corporations preparing for their own bond issues, with projected rates hovering around 8%. Companies such as Jinmao, Shouhua, and Ping An Real Estate are reportedly in the pipeline for US dollar bond issuance.

In closing, as Song Hongwei has highlighted, the issuance of overseas bonds by Greentown not only optimizes its cash flow but also assists in advancing corporate strategies while improving the company's public image and creditworthiness. The revived credibility associated with Greentown's US dollar bonds represents not only its own recovery but also serves as a beacon of hope within a broader real estate sector still grappling with inefficiencies and financial tightness.