China's property debt crisis enters new phase as bond havens crumble

[ad_1]


China’s property debt crisis is entering a new phase as even developers that had long been considered safer rapidly tumble into distress.


The past 24 hours have brought things to a head for several builders in that group, while fresh data underscored broader challenges as a slump in home sales intensified.


Greenland Holding Group Co., partially owned by local government entities and long seen as among the nation’s most resilient property firms, slid to record lows after saying Monday it would likely default on a dollar note due Nov. 13. The price on that security dropped to 13 cents Tuesday, from as high as 88 cents just last week. CIFI Holdings Group Co., among a small group to get state guarantees for local debt offerings, also dropped to new lows after saying it will suspend offshore financing payments.


“Investors have pretty much lost all hope in the entire property sector,” said Anthony Leung, portfolio manager at Pollock Asset Management Ltd. “The sheer scale of destruction in value will have a profound impact on the investment appetite of all kinds of China risk assets for years to come.”


The latest moves have dragged even more junk dollar notes from Chinese property companies into distress, with 94% now trading below 70 cents on the dollar. That market was until just years ago one of the most lucrative bond trades globally. But it all began to unravel after a nationwide clampdown started in 2020 on leverage and real estate speculation, and has snowballed into record defaults by developers including China Evergrande Group.


The contagion is even reaching property giants that still have investment-grade ratings including China Vanke Co., the nation’s second biggest developer by sales. Its note due 2027, which was trading above 80 cents just a month ago, fell 4 cents Tuesday in the worst two-day drop ever to an all time-low of 40.3 cents.


“Now with some presumably better-off developers getting into trouble, people start to worry about a contagion to non-state developers,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future given sales have been slower than expected.”


The rapid plunge among firms that had been seen as more capable of weathering the broader industry crisis is decimating the last bastion for global money managers in China’s offshore bonds.


Covid Zero restrictions are also hurting. Shanghai-based Greenland cited “the sudden and serious impact of the Covid-19 situation” in that city earlier this year and subsequent sporadic outbreaks across the country as it warned about its impending nonpayment on notes.


It’s not alone. The 100 biggest real estate developers saw new-home sales drop 28.4% from a year earlier in October, widening from a 25.4% slump the month before.


“What’s happening now is an extreme scenario at the bottom of property industry cycle,” said Deng Hao, founder of private bond fund Beijing GEC Asset Management. “The effectiveness of supportive policies has been largely compromised by extra negative impacts from Covid. When and how to get out of the crisis mode is ultimately hinged on the restoration of homebuyers’ confidence.”


Policy makers are trying to strike a balance between making homes more affordable and preventing surging nonpayments from threatening the broader financial system.


Recent steps to support the property industry included a scheme that emerged in August to have state-owned China Bond Insurance Co. guarantee local note sales by some builders such as CIFI. There was also an unexpected policy rate cut by the central bank, special loans through policy banks and economic stimulus.


While those measures did help spark a rally, it faded within weeks and the nation’s builder-dominated dollar junk notes lost 12% in October in one of their worst months ever.


chart


As refinancing costs surge in global debt markets, China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023, raising the specter of even worse payment pressure to come. There’s $53.7 billion borrowings still due the rest of 2022, followed by $72.3 billion of maturities in the first quarter of next year.


“We have seen no improvement in terms of the funding for private-sector developers,” Bank of America Corp. economist Helen Qiao said on Bloomberg Television Tuesday. “The stimulus was not strong enough to get them out of the current liquidity trap, and therefore how exactly they can really survive raises many questions.”

[ad_2]

Source link

Source link

Rate this post

Add your comment

Ads Blocker Image Powered by Code Help Pro

Ads Blocker Detected!!!

We have detected that you are using extensions to block ads. Please support us by disabling these ads blocker.

Powered By
Best Wordpress Adblock Detecting Plugin | CHP Adblock