Developer stocks surge after China pledge: Evergrande update

But analysts cautioned that it may be too late to restore confidence in a sector hit by a wave of defaults. 
Image: Bloomberg

Stronger Chinese developers’ dollar bonds jumped and stocks surged after Beijing’s call for more property industry support, but analysts cautioned that it may be too late to restore confidence in a sector hit by a wave of defaults.

Bonds of builders such as Country Garden Holdings Co. and CIFI Holdings Group Co. soared and an index of developer shares posted a record gain. Shares in Sunac China Holdings Ltd. surged as much as 65% as bearish bets unwound. The firm was also downgraded three notches to B- by S&P Global Ratings.

Chinese high-yield dollar notes offered a more subdued response to China’s pledge to “actively introduce policies that benefit markets,” rising just 2 cents. More than half of junk-rated developers’ bonds are trading at less than 50 cents, according to Bloomberg Intelligence. Yields on such debt approached 28% this week, the highest ever. Any rollout of more aggressive easing measures at this point could be “too little, too late,” said BI analyst Kristy Hung.

Key Developments:

  • Here’s What Analysts Are Making of Liu He’s Meeting: Street Wrap
  • Kaisa Talking to State Cos. on Investment, Cooperation: Cailian
  • China’s Support Vow May Be ‘Too Late’ for Debt-Saddled Builders
  • Hidden Debt Fears Unravel Lucrative Lifeline for China Builders
  • China Stocks Extend Historic Surge as Traders Cheer Support Vows
  • China Will Not Expand Its Property Tax Trial This Year
  • Country Garden Exec., Supervisor to Buy up to 20m Yuan Co. Bonds
  • Xi Spurs Frantic Stock Buying With Lifeline for China Market
  • China CBIRC to Unveil Policies to Bolster Capital Markets

Developer Sunac’s Shares Feel the Squeeze (3:08 p.m. HK)

Record gains in some developers’ stocks follow a recent run-up in short-selling volume, as bearish bets are forced to unwind.

Sunac surged Thursday after short-sell volume hit more than 268 million shares a day earlier, according to data compiled by Bloomberg. Despite the gain, the shares are still down by nearly half this year. Elsewhere, Seazen Group Ltd. rose 42% after short-selling volume spiked to 18.6 million shares Wednesday. Logan Group Co. jumped as much as 47%.

Sunac China Cut Three Notches to B- by S&P; Watch Negative (1:22 p.m. HK)

Sunac’s long-term rating was downgraded by S&P to B- from BB-, the credit assessor said in a statement. It also put the firm on watch for further downgrade, saying the builder’s accessible cash has diminished following debt repayment.

China Developers’ USD Bonds, Stocks Extend Surge on Support Vow (12:29 p.m.)

Some Chinese builders’ dollar notes and stocks soared as the country won’t expand a trial on property taxes, adding to sharp day-earlier gains after authorities promised to resolve risks in the real estate sector.

Country Garden’s 6.25% bond due 2024 jumped 12.8 cents to 62.3 cents, set for largest gain since January, Bloomberg-compiled prices showed as of 12:14 p.m. in Hong Kong.

China’s Support Vow May Be ‘Too Late’ for Debt-Saddled Builders (11:41 p.m. HK)

While stronger developers jumped, many Chinese builders’ dollar bonds saw mostly subdued gains Thursday after Beijing vowed to stabilize markets and support the property sector, as analysts cautioned that it may be too late to restore battered investor confidence.

Zhenro Says It Didn’t Redeem Securities Within Grace Period  (8:51 a.m. HK)

Trading in Zhenro Properties Group Ltd.’s perpetual bond was suspended by Hong Kong’s stock exchange as of Thursday after the builder said it hadn’t redeemed the note as planned following a 10-day grace period, according to a filing.

Policy Easing for China Property Likely Too Little, Too Late (7:57 a.m. HK)

Any rollout of more aggressive easing measures at this point, such as reopening of bond sales, would do little amid poor investor sentiment, notes Bloomberg Intelligence’s Kristy Hung. A scaleback of home-purchase curbs may not revive sales amid fear of construction halts and loss of investment appeal for property.

Hidden Debt Fears Unravel Lucrative Lifeline for China Builders (5:00 a.m. HK)

What used to be a gold mine for Chinese property developers has become a burden as the industry’s credit crunch intensifies.

Urban redevelopment projects, which turn run-down areas into new properties in big cities, were sought after by developers like Logan and Times China Holdings Ltd. in recent years for their prime locations and hefty margins.

Now such works are being scrutinized by investors and credit rating companies for their tendency to house hidden debts through the use of joint ventures and shadow financing. They are also taking longer to complete — sometimes more than a decade — sucking up cash and making it difficult for distressed developers to generate sales in time to soothe angry creditors.

China Will Not Expand Its Property Tax Trial This Year (6:54 p.m. HK)

China will not expand a trial on property taxes this year amid a housing market slump and growing pressure on the world’s second-largest economy from a renewed virus outbreak and geopolitical turmoil.

There are no conditions to expand the property tax reform pilot program within this year after considering all aspects, Xinhua News Agency reported, citing an unidentified Finance Ministry official. Some cities have carried out investigations on the tax trial after the country’s top legislative body approved the reform plan, the official said, according to Xinhua.

© 2022 Bloomberg

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