China’s housing crisis has engulfed the country’s private property developers, triggering a record wave of defaults and a dwindling “survivor group.”
Thirty-four of the top 50 private developers by dollar-denominated bond issuance have already defaulted on their offshore debt payments, according to data compiled by Bloomberg as of Sept. 1. The remaining 16 companies, including Hekkeien, are facing payments of $1.48 billion on onshore and offshore bonds in September. Payments for the same month were the highest for a month until January next year.
Chinese junk-class dollar-denominated bonds, mostly issued by property developers, are now trading at around 67 cents on average, according to Bloomberg indexes.
China’s economy is losing momentum after a long period of rapid growth
Source: Bloomberg
The debt pressure highlights the continued payment risk among the sector’s survivors amid unprecedented funding shortfalls.
Real estate stocks rose Monday on renewed efforts by authorities to stem the housing slump, but fears remain that Hekkeien is headed for default. A default could plunge the Chinese market into further turmoil.
In that case, the impact could be more severe than it was with China Evergrande in 2021. Hekkeien has four times as many real estate projects as Everdai.
Debt Burden
China’s surviving private builders face big payment tests
Source: Bloomberg
“Nearly 70% to 80% of non-state-owned issuers in major sectors default or become distressed in such a short period of time,” said Jie Wei Feng, senior analyst at Loomis Sayles Investments Asia. “It’s rare. It will definitely lead to more defaults.”
Topping the list of survivors and in imminent danger of default is Hekkeien. The company is required to pay a combined $22.5 million in coupons on two dollar-denominated bonds within a grace period that expires on May 5-6.
Failure to do so may result in the creditor declaring default. A person familiar with the matter said Monday that Hekkeien has told its creditors that it has yet to make dollar-denominated interest payments.
Shinshiro Development and Gakyugaku Group are the next two to watch, according to Bloomberg Intelligence (BI) credit analyst Andrew Chan. Other developers are more focused on commercial properties or receive some government support, he said.
Shinshiro has $104 million and Gakyuraku has $222 million in debt, both onshore and offshore, due by the end of the year.
Government-backed Far Seas and China Vanke are also on the list, suggesting that even developers with some government backing are facing payment pressure.
A Bloomberg index that tracks China’s junk-class dollar-denominated bonds, mostly property developers, fell 5% in August, its biggest drop since May. Although the government has strengthened its efforts to support real estate, it has turned upward since last week, but since the beginning of the year it has fallen by more than 14%.
The 16 “survivors” private developers are:
Developer Byekei Yuan Yi Yu Le Group Shui Ong Development (Holding) China Jinmao Holding Group Vanke Occupation (Hong Kong) Xincheng Development Ocean Group Lucheng China RK Properties International Zhongjun Group Longhu Group Dalian Wanda Group Huanancheng Yang Road Land ･ Group Synergy Creation Group Konji (Group)
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Original title:Debt Crisis Threatens to Engulf China’s Surviving Developers (2)(excerpt)
2023-09-05 02:57:05
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