(Bloomberg) — Two other Chinese developers failed to meet dollar bond payments, amid a renewed slowdown in home sales and a lack of aggressive stimulus.
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Central China Real Estate Ltd. said it had not paid interest on a note before the end of a grace period on Friday and would suspend payments on all offshore debt. The smaller counterpart Leading Holdings Group Ltd. revealed Friday night in its own exchange filing that it had failed to pay the full principal of $119.4 million plus interest due on a dollar bond issued a year ago under a debt swap.
The two companies also said they would engage with outside advisers and work on comprehensive solutions for their offshore debt. Central China is the country’s 33rd largest builder by contract sales, according to China Real Estate Information Corp., while Leading Holdings is not in the top 100.
The delinquencies last week followed several Chinese automakers who released funds for interest payments at the end of 30-day grace periods or soon after. The property sector’s unprecedented cash crunch led to record defaults on dollar-denominated bonds from Chinese issuers last year and still-high missed payments so far in 2023.
There are growing expectations that Chinese authorities will unveil more stimulus for struggling sectors, including real estate. But investors were disappointed last week after Chinese banks cut their benchmark mortgage rate less than expected. A slow rollout of stimulus measures adds to concerns about the country’s economy.
“Chinese developers continue to face investor skepticism in another slowdown in sales, and refinancing may be selectively extended by banks even after the 16-point plan,” said Chang Wei Liang, strategist at DBS Bank. ltd.
Central China’s announcement likely comes as no big surprise to the market given the company’s short-term dollar bond trading levels, according to Zerlina Zeng, senior credit analyst at CreditSights. “Most of the smaller private developers are still facing dire liquidity conditions due to the weak recovery in contract sales,” she said.
The company’s notes fell 4 cents on Monday, outpacing declines of up to 0.5 cents in China’s builder-dominated high-yield dollar bond market, credit traders said. Chinese assets were down overall, with equities and the yuan weakening on further signs of slowing economic momentum.
Central China and Leading Holdings notes on which payments have not been made have been listed at less than 30 cents on the dollar for much of this year, according to data compiled by Bloomberg. Such prices are generally seen as deeply distressed levels and signal investors’ doubts about paying on time.
The central China parent company sold a 29% stake in the automaker less than a year ago to a government-owned entity in its home province of Henan. Market optimism, fueled by hopes the move would bring state support to the automaker, did not last. Central China swapped three dollar notes in April that were due to mature in 2023.
–With help from Pearl Liu and Lorretta Chen.
(Adds market performance to eighth paragraph.)
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