Crisis in China’s property market deepens as developer asks creditors for breathing space to repay corporate bond
- Modern Land has asked investors to push back the maturity date of a £183million bond from 25 October to 25 January
- Modern Land’s April 2023 bond with a coupon of 9.8% plunged more than 25% to 32.25 cents on the day
- The slide underlined the crisis in the Chinese property market that has centred on Evergrande, and could spill out into the global economy
China property bonds slumped across the board today after a developer asked to delay the repayment of credit that was due in a fornight’s time.
Modern Land asked investors to push back the maturity date of a £183million bond from 25 October to 25 January in part ‘to avoid any potential payment default.’
The real estate firm’s April 2023 bond – which pays an interest rate of 9.8 per cent – plunged more than 25 per cent to 32.25 cents on the day, according to financial data provider Duration Finance, while the company’s shares fell more than 2 per cent.
China property bonds slumped across the board on Monday after a developer asked to delay a paper’s maturity
The slide underlined the crisis in the Chinese property market that has centred on Evergrande, and could spill out into the global economy.
The firm is grappling with more than £220billion of debt and it is now awaiting news of £108million in looming debt coupons.
Other property developers’ bonds were also under pressure.
Ronshine China Holdings’s October 2022 bond fell 12.9 per cent to 52.187 and Guangzhou R&F Properties Co’s February 2023 bond tumbled 8.37 per cent to 55.233.
Commenting on the downward trend, Clarence Tam, fixed income portfolio manager at Avenue Asset Management in Hong Kong said: ‘It’s a disastrous day. Even investment grade bonds are trading at low 80.
‘We think it’s driven by global fund outflow. It’s very rare to see minus 10 points… these IG quality bonds are usually liquid. And fundamentally we are worried the mortgage management onshore hit the developers’ cash flow hard.’
In equity markets, the Hang Seng Property and Construction sub-index fell 0.4% against a nearly 2% rise in the broader index.
The slide underlined the crisis in the Chinese property market that has centred on Evergrande, and could spill out into the global economy. The firm is grappling with more than £220billion of debt and it is now awaiting news of £108 million in looming debt coupons
The latest slide in property bonds follows heavy selling of Chinese high-yield dollar debt last week, particularly after smaller developer Fantasia Holdings Group Co missed the deadline on a £151million international market debt payment.
The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index was last recorded at 2,069 basis points on Friday evening US time, its widest ever.
Advisers to offshore bondholders said last Friday that they want greater transparency from Evergrande, and are also demanding more information about its plan to divest some businesses.
The firm is run by Hui Ka Yan, at one point China’s richest man, and claims to have built homes for more than 12m people since it was founded in 1996. Shares are down 80 per cent this year.
The stock was suspended on the Hong Kong stock exchange on 4 October pending a ‘major transaction’ expected to involve the £3.7billion sale of a 51 per cent stake in its property management division.
Expectations that it will make the semi-annual payments on its April 2022, April 2023 and April 2024 dollar notes due 11 October are slim as it prioritises onshore creditors and remains silent on its dollar debt obligations.
That has left offshore investors worried about the risk of large losses at the end of 30-day grace periods.