Developers rally on politburo support pledge: Evergrande update

The Politburo pledged to ‘strengthen infrastructure construction in an all-around way’ and to support the housing market.
Image: Qilai Shen/Bloomberg

A Bloomberg gauge of Chinese developer stocks rallied, reversing earlier losses, after the nation’s top leaders vowed to support the housing market, boost economic stimulus and spur growth.

A unit of defaulted Chinese developer Yuzhou Group Holdings Co. has repaid several debts to onshore creditors, people familiar with the matter said, adding to signs international investors are increasingly being left in the cold while priority payments are made to local bondholders.

Sunac China Holdings Ltd. remains in focus with grace periods set to end next month for a combined $105 million of coupons involving four dollar bonds. Once seen as a survivor of Beijing’s real estate sector clampdown, the country’s fourth-largest developer by sales in the first quarter, has failed to meet initial deadlines for interest obligations.

Key Developments:

  • China’s Politburo Pledges More Stimulus to Rescue Growth
  • China’s Sudden Currency Plunge Raises Risk of a 2015-Style Panic
  • China Property Support Talk Like ‘The Boy Who Cried Wolf’: Citi
  • Sunac Faces Debt Deadlines While Pressure Eases on China Rivals
  • China Year-to-Date Bond Sales $371B
  • Zhongliang Holdings Downgraded to C by Fitch
  • Moody’s Cuts Jiangsu Zhongnan to B3/Caa1; Outlook Negative

China’s Politburo Ignites Market Rally With Vows on Growth (3:12 p.m. HK)

China’s top leaders promised to boost economic stimulus to spur growth and vowed to contain the country’s worst Covid outbreak since 2020, which is threatening official targets for this year.

The Politburo pledged to “strengthen infrastructure construction in an all-around way” and to support the housing market. While officials repeated the phrase that “houses are for living in not for speculation,” the government said it would also work to meet the demand for better quality housing and “optimize” the supervision on developers’ income from project pre-sales.

China Developers Erase Losses After Politburo Vows Support (1:20 p.m. HK)

A Bloomberg gauge of developers erased an earlier loss of as much as 2.5% and jumped as much as 2.9% on Friday, after China’s top leaders said efforts will be made to help the stable and healthy development of the property market.

The earlier decline was due to the yuan extending a recent selloff, potentially affecting developers with heavy offshore debts, while April’s sales data are likely to decline, according to Bloomberg Intelligence analyst Patrick Wong.

Global China Distressed Debtholders Left in Cold as Locals Paid (12:34 p.m. HK) 

International investors in Chinese distressed debt have increasingly been left watching as repayments go first to local creditors.

Chinese developer Yuzhou has repaid several debts to onshore creditors, people familiar said late this week. The payments were on an asset-backed security tranche and a 1.5 billion yuan ($226 million) bond on which investors had previously exercised an option for early repayment.

This is the latest example of how local creditors have received coupon payments or sweetened offers on extension proposals, while some offshore payments haven’t been made. A divergence between distressed Chinese developers’ yuan and dollar securities is widening, as defaults on corporate bonds from the nation have been heavily skewed toward offshore debt in 2022, a sharp contrast to previous years.

China High-Yield Dollar Bonds Jump, Led by Property Developers (10:21 a.m. HK)

Chinese high-yield dollar bonds rallied about 3 cents on the dollar Friday morning, according to credit traders, with some developers’ notes on pace for biggest gains in about three weeks.

That’s after onshore corporate bond spreads tightened Thursday, with yields on government debt rising faster. Sunac China remains in focus, as the clock starts ticking for it to meet final coupon deadlines for several dollar bonds.

Citi Cites “Boy Who Cried Wolf” Fable (9:25 a.m. HK)

The ongoing talk about government aid to China’s property sector is like “The Boy Who Cried Wolf” fable and “at a certain point investors just stopped believing that any meaningful support will come,” Citigroup analysts including Dirk Willer wrote in a report.

Arguing for support, they said the situation is likely to get worse before it gets better given the ongoing home-sales slump and Covid-Zero policy. They said they can’t see Chinese banks start lending to developers that have requested extensions or are in grace periods with already-due payments. Direct support, such as capital injections into struggling developers, is also unlikely, they wrote.

Separately, the Communist Party’s Politburo on Friday promised to boost economic stimulus to spur growth.

Guangdong to Stabilize Housing, Economy (7:47 a.m. HK)

The southern Chinese province vowed to ensure stable development of the property market and boost financial support for small companies hit by Covid, according to a notification Thursday. The local administration has called on banks to set reasonable down-payment ratios and mortgage rates for home buyers.

The local government also encouraged financial institutions to boost support for quality property projects and ensure timely deliveries. The province will push distressed developers to “actively conduct self-rescue and defuse risks.”

China Property Sales Slump Set to Continue (6:09 a.m. HK)

Bloomberg Intelligence analysts Kristy Hung and Lisa Zhou wrote the spread of Covid-19 could impede recovery in the nation’s housing market in May and June. New home sales in 43 cities recorded an almost 40% slump in the first three weeks of April and developers are set for another steep decline, they wrote.

Sales in larger cities are more prone to weakness on lockdown measures. Beijing’s mass testing of residents in most districts following a spike in Covid cases could bode ill for transactions in May, after Guangzhou’s new home sales volume slumped 71% in April on city-wide testing, while Shanghai’s tumbled 93% on lockdown measures, they wrote.

In a separate note, Hung said Agile Group Holdings Ltd., Guangzhou R&F Properties Co. and Ronshine China Holdings Ltd. may stand a chance of dodging a trading halt if they miss the May 15 deadline for releasing their audited accounts by submitting a written waiver application to the stock exchange, which will be evaluated case by case.

Guangzhou R&F Books Loss on Sale (5:45 a.m. HK)

Guangzhou R&F agreed to sell a 50%-held London property project and is expected to record a loss of about HK$1.84 billion ($235 million) from the disposal, it said in a statement late Thursday.

It will sell the property to Cheung Chung Kiu, chairman of C C Land Holdings — the project’s joint venture partner — for HK$2.66 billion including loan.

The project is currently known as “Thames City,” located south of Nine Elms Lane, London, with a total site area of about 449,000 square feet and a total salable floor area of about 1.7 million square feet. It is a mixed use development comprising 12 residential buildings, a park and other facilities.

© 2022 Bloomberg

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