SHANGHAI, Nov 12 (Businesshala) – In late October, as developers’ bonds closed due to a growing liquidity crisis in China’s property sector, a group of Chinese finance professionals took to messaging app WeChat to pool their funds and buy unaffected debt. got together for
The first target was a 5.3% January 2022 bond issued by a unit of Yango Group (000671.SZ), trading at almost half its face value and offering a yield of over 400%.
According to a source invited to participate, via WeChat, punters were invited to pool in at least $50,000 each for a chance to double their money.
Yango, whose Chinese name is Sunshine City, was hit by a series of credit rating downgrades due to weak access to funding and will reach agreements with investors to extend other debt payments to avoid default.
“We have $100,000 secured, it’s ready if we collect $200,000,” the organizer told a WeChat group in messages seen by Businesshala. Less than an hour later, on October 22, the group had collected over $300,000 as organizers urged calm – before pitching another group purchase of Greenland Holdings (600606.SS) bonds.
Nevertheless, since the October WeChat Group purchase, the January 2022 bond price of the Yango entity has fallen by more than 50% and the company has extended its repayment date by one year.
Even as concerns over the payment capabilities of Chinese developers continue, the spread – or risk premium – on their riskiest dollar loans (.MERACYC) is driving to a record high, discounting some investors in China and abroad. Those who see equal opportunity in Chinese debt.
The hunt for a bargain has intensified after selling investment-grade (IG) names (.MERACCG) pushed their spreads to a near seven-month peak, and in hopes that regulators would hold on to assets to avoid an area. Can curb – widespread collapse.
A series of narrow escapes from defaults by China Evergrande Group (3333.HK), whose cash crunch fueled the sell-off, have helped calm nerves, though developers continue to default or make late payments on their loans. has kept.
“The expansion of IG spreads provides investors with selective opportunities to gain exposure to high-quality issuers,” said Shaw Yan Ho, Head of Asia Fixed Income at JPMorgan Asset Management. Snap up distressed properties in the area.
Investors say recent rating downgrades, such as S&P Global’s move to move Shimao Group Holdings (0813.HK) to speculative grade, have also helped to clarify risks and act to stabilize investment-grade spreads. Can do.
Ho said investment-grade firms would further benefit from supportive policies, including faster mortgage approvals and local government efforts to continue building infrastructure.
Hopes of more support have been raised as China’s economy falters under new measures to control the COVID-19 outbreak and power shortages affecting factories.
But policy sources say the country’s central bank is expected to proceed with caution on monetary policy easing, while officials are likely to stand firm on policies to curb over-borrowing by property developers.
This could spell trouble for Chinese developers with more than $90 billion worth of bonds maturing in the next year, according to Refinitiv data.
Edward Chan, director of corporate ratings at S&P Global, said that about 30 recent S&P rating actions on Chinese issuers have been negative. S&P forecasts continued market volatility in Chinese debt into 2022, with larger debt maturities pushing more offshore defaults.
But Hayden Briscoe, head of Asia-Pacific fixed income at UBS Asset Management, said default rates of around 20% would be needed for investors to lose money, noting that he had seen the “sector flood” from global high-yield . investor.
Predicting a bumpy ride, James Wong, Portfolio Manager of Gaoteng Global Asset Management Ltd, said that while he thinks the market is “really, really close” to the bottom, there is limited market liquidity both up and down. Will present the moves exaggeratedly.