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Bond rally fades; presales cash in focus: Evergrande update

Amid growing investor doubt over how much a reported plan to allow developers greater access to funds from presold homes will benefit distressed firms.
Image: Patrick Winters

A record-breaking rally in Chinese property bonds petered out on Thursday amid growing investor doubt over how much a reported plan to allow developers greater access to funds from presold homes will benefit distressed firms.

China Aoyuan Group Ltd. won’t make payments on four dollar bonds and said that will trigger defaults on all other offshore debt, becoming the latest Chinese developer caught short in the industry’s liquidity crisis. Chinese regulators urged local authorities to ensure home building isn’t impeded by creditors’ requests to freeze developers’ assets held in escrow accounts.

Chinese high-yield dollar bonds fell as much as three cents on the dollar, after jumping Wednesday when the reports of regulatory easing emerged. Gains extended in the stock market, with an index of developer shares rising more than 3% as traders cited short covering. In a positive development, shares of Sunac China Holdings Ltd. surged as much as 17% after a unit wired funds for holders of a yuan bond who exercised an option for early repayment.

Key Developments:

  • Chinese Property Bond Rally Fades as Investors Seek Clarity
  • China Seeks to Ensure Frozen Assets Won’t Impede Home Building
  • China Aoyuan Won’t Pay Bonds, Signals Default Imminent (1)
  • Sunac China Downgraded to BB- by Fitch, Outlook Negative
  • China Considers Easing Developer Cash Crunch With Presale Funds
  • China’s Spreading Property Debt Crisis Pressures Xi to Ease
  • Why Hidden Debt Is a Big Problem for China Developers: QuickTake

Chinese Property Bond Rally Fades as Investors Seek Clarity (2:15 p.m. HK)

A record-breaking rally in Chinese property bonds petered out on Thursday amid growing investor doubt over how much a reported plan to allow developers greater access to funds from presold homes will benefit distressed firms.

High yield notes fell as much as 3 cents on the dollar after jumping Wednesday following the reports. Bonds of Country Garden Holdings Co. and Sunac China Holdings Ltd. fell after rallying by a record. Gains extended in the stock market, with an index of developer shares rising more than 3% as traders cited short covering.

China South City Seeks Consent on 2022 Notes to Extend Maturity (2:02 p.m. HK)

China South City is seeking consent from holders of its 11.50% notes due 2022 and 10.875% bond due 2022 to extend maturity of the securities, it said in an exchange filing.

It proposes to extend the 11.50% bond maturity to Aug. 12 from February 12 and 10.875% notes to Oct. 26 from June 26 as well as allowing the firm to redeem any outstanding notes at any time at par with accrued and unpaid interest.

Sunac Wires Funds for Payment (12:04 p.m. HK)

A unit of developer Sunac has wired funds for holders of a yuan bond who exercised an option for early repayment, according to people familiar with the matter. Separately, Chinese media outlet Cailian reported that Sunac wired funds Thursday for an onshore ABS product repayment due Feb. 9, without citing anyone.

China Urges Ensuring Presale Fund Use for Construction (11:21 a.m. HK)

China’s supreme court, housing ministry and PBOC issued a notice calling for ensuring that presale funds of property projects are used for construction, according to a copy of the notice posted on the WeChat account of the Xiangyang real estate association.

Authorities called on local governments to avoid affecting home deliveries or project expense payment because of court actions on presale funds, according to the notice dated January 13.

Greentown’s Dollar Bond Sale May Reopen Market (11:09 a.m. HK)

A rare dollar bond sale from one of China’s stronger developers will be a key test of appetite for the embattled sector.

Greentown China Holdings is kicking off a sale of a “credit enhanced” green dollar bonds, according to a person familiar with the deal who is not authorized to speak about it publicly. The note has a standby letter of credit (SBLC) guaranteeing the debt from China Zheshang Bank Co., the person said.

China’s Guangdong to Steadily Mitigate Property Developer Risks (10:47 a.m. HK)

The government of Guangdong province will steadily push ahead with mitigation of debt risks of property developers including China Evergrande Group in a market-oriented and law-based way, according to the annual work report by acting provincial Governor Wang Weizhong.

Worst May Be Over for China Builders on Presale Easing: BI (9:50 a.m. HK)

The worst may be over for China developers now that regulators are reportedly considering lifting some curbs on access to cash from presold properties in escrow accounts — the key factor to ease their liquidity crunch, Bloomberg Intelligence analyst Kristy Hung wrote in a note. With M&A loans to support SOEs buying developers’ projects, this could cut default risks and aid sentiment in the housing market.

Yuzhou Gets Support for Debt Exchange Offer (9:35 a.m HK)

Yuzhou Group has obtained support from the overwhelming majority of holders in its exchange offer of 2022 notes, according to a Hong Kong stock exchange filing.

© 2022 Bloomberg

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