Wrapup 1: China property developers' shares, bonds slump as sector worries deepen

Country Garden Services Holdings

24/07/2023 08:02

By Jason Xue and Tom Westbrook
       SHANGHAI/SYDNEY, July 24 (Reuters) - Stocks and bonds in
China's real estate industry fell to around eight-month lows on
Monday as repayment worries at two of the country's biggest
developers plunged confidence in the sector deeper into crisis.
    Cash crunches at giants Country Garden  2007.HK  and Dalian
Wanda show funding trouble has reached what many hoped were the
largest and safest players in a business that once contributed a
quarter of China's gross domestic product and is now all but
frozen.
    Doubts are growing that official support of any size is on
the way, and investors do not expect any aid to be aimed at
shareholders.
    Country Garden shares fell 6% to an eight-month low and
shares in its services arm  6098.HK  fell 16%. Country Garden
dollar bonds fell to less than a fifth of their face value.
    Shares at rival Longfor  0960.HK  dropped 10%, while an
asset sale at Wanda failed to revive bond prices as investors
waited on whether the cash actually reaches bondholders'
pockets. 
    "As market sales continue to weaken and policy expectations
continue to fall short, it will be difficult for real estate
developers to repay bonds by their own operations," said Yao Yu,
founder of credit analysis firm Ratingdog.
    "Investors must become more and more pessimistic."
    Property development has ground to a halt in China as a
government crackdown on debts and crumbling public confidence
have left builders unable to sell apartments or refinance their
dues.
    Guidelines promoting urban redevelopment published late on
Friday were seen as small scale, leaving investors hoping for
more from a Politburo meeting expected this week. That big names
were struggling, however, highlighted the depth of the problems.
    An index of mainland developers  .HSMPI  fell 5.5% on Monday
and was on course for its worst session of 2022.  
    "Everything is falling," said a Hong Kong debt fund manager,
who spoke on condition of anonymity.
    "The major thing that we see now is onshore-traded Country
Garden bonds going down," he said. "That is the largest one.
People get scared if that one cannot survive." 
    
    NEW JITTERS
    Country Garden is a giant with thousands of projects in
nearly 300 Chinese cities. Its move to refinance a 2019 loan
facility surprised and unnerved investors, and comes on the
heels of ratings downgrades and new defaults elsewhere.
    Country Garden's onshore-traded bonds  CN163015SH= 
 CN149632SZ=  slumped to less than half of their face value on
Monday and dollar bonds due in 2025  XS2051371222=TE  and 2031
 XS2280833307=TE  fell below 20 cents on the dollar.
    Wanda, China's largest commercial developer, was also
scrambling for cash for one of its subsidiaries to make an
already-late coupon payment due before the end of a grace period
on July 30. It sold part of another subsidiary to streaming firm
China Ruyi  0136.HK  for $320 million, which a source familiar
with the matter said would help it repay a separate $400 million
bond.
    State-backed developer Greenland Holdings  600606.SS  has
missed repayments this month, while Sino-Ocean Group  3377.HK 
proposed extended terms for a 2 billion yuan ($278 million) bond
due on Aug. 2.
    The fresh troubles have squashed a nascent rally when China
lifted COVID-19 controls and opened its borders after years of
movement restrictions.
    Restructuring plans at Evergrande, which was the
poster-child of the sector's 2021 plunge into funding stress,
remain before courts in Hong Kong and the Cayman Islands, while
property sales are in the midst of a new slowdown. 
    "Distressed Chinese property developers’ bond restructurings
can buy them some room," Fitch Ratings said in a report on
Monday. "But most will continue to face repayment difficulties
if home sales do not recover for a sustained period." 
($1 = 7.1972 Chinese yuan renminbi)

 (Reporting by Jason Xue in Shanghai and Tom Westbrook in
Sydney; Additional reporting by Clare Jim, Xie Yu and Georgina
Lee in Hong Kong. Editing by Kim Coghill and Jamie Freed)
 ((Jason.Xue@thomsonreuters.com;))