Chinese Property Bonds Hammered by Weak September Sales and a Surprise Default

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The price of dozens of dollars worth of bonds sold by Chinese real estate companies fell on Wednesday

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Some developers’ sales data for September also showed a significant drop in home-buyer demand, as property giant China Evergrande Group was cash-strapped and forced to halt construction in some of its unfinished residential projects. it was done.

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Analysts say the weak numbers reflect China’s sweeping efforts to subdue the housing market, while Evergrande’s problems have drawn Chinese citizens to shell out money for new homes built by other private developers.

Debt issued by companies like Kaisa Group Holdings Ltd.

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Redson Properties Group Ltd.

, and Yuzhou Group Holdings Co.

fell in price. According to Tradeweb, an 11.25% bond from Cassa in April 2022 in Hong Kong fell from as low as 73 cents on the dollar by late Wednesday, up from 86 cents early Tuesday.

The ICE BofA index of high-yield dollar bonds of Chinese companies showed a yield of more than 18% on Wednesday, the highest in nearly 10 years. Asset bonds make up a large portion of the gauge.

“Business has been extremely active. It’s very choppy; markets are very nervous,” said Michelle Lowy, chief executive officer of SC Lowy, a financial institution specializing in distressed and high-yield loans. “It’s just Imagination is not. It was content, but it’s not helping the developers by coming up with horrific sales numbers for September,” he said.

Paras Gupta, head of discretionary portfolio management for Asia at Union Bancaire Privy, said the sale has also spread to Chinese developers’ bonds that are on a strong financial footing. “It is now a full blown risk for the region,” he said.

Bonds Payable in 2031 from Country Garden Holdings Co.

According to Tradeweb, one of China’s large and financially strong developers was quoted on the dollar on Wednesday at around 88.75 cents.

Fantasia’s bond default was the main reason for the recent decline, which happened just days after Evergrande missed the second interest payment deadline on a set of dollar bonds. While Evergrande has a 30-day grace period before declaring its offshore investor default, there was no grace period on Fantasia’s bonds maturing on Monday.

Fantasia’s non-payment surprised investors as the Shenzhen-headquartered developer recently said it had no liquidity issues, and indicated that it had outstanding balances on five-year dollar bonds issued in 2016. There was enough cash to pay. Like Evergrande, Fantasia was an active issuer of high-yield dollar bonds over the years.

Some market participants speculated that Fantasia and its controlling shareholders had chosen not to repay the company’s international debt, raising doubts as to whether other Chinese developers might do so to conserve cash or to protect their onshore creditors. can prioritize.

“The recent event has shattered market confidence, which has triggered a revaluation by investors of sponsors’ willingness to pay,” said Jenny Zeng, co-head of Asia Pacific Fixed Income and a portfolio manager at AllianceBernstein in Hong Kong.

She said nearly half of China’s high-yield asset bonds were now trading at yields of more than 20% — a higher default risk for those companies and making it harder for them to refinance incoming loans.

The previous month was possibly the worst September for industry sales in the past 20 years, CCB International analyst Lung Siufang wrote in a note to clients on Monday, noting that September and October are traditionally the peaks for domestic sales in China. There are seasons.

Quoting data from data provider, CRIC, Mr Lung said average contract sales for major developers fell 28% compared to September of last year.

Some individual developers have also reported a sharp drop in sales. Hong Kong-listed Cassa said this week that contracted sales in September were 5.7 billion yuan, equivalent to $884.3 million. This was 28% lower than a month ago.

Meanwhile, Evergrande had previously warned of a sharp drop in September contracted sales after a fall in the summer.

Junk bond prices are now indicating that investors are expecting more bond defaults among Chinese developers.

“The market is assuming the worst and without government intervention, the degree of asset price distress could increase,” said Paul Lukaszewski, head of corporate debt for the Asia Pacific region at asset-management firm Aberdon.

Mr Lowery at SC Lowy said a number of measures could help stabilize the market, including government policy easing, promises made by developers to pay off mature dollar bonds, and outlining appropriate restructuring plans at Evergrande and Fantasia. Is.

Francis Yoon at [email protected] and Quentin Webb at [email protected]

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