A potential default at Chinese property giant Country Garden Holdings Co. has sent the country’s high-yield dollar bonds to 2023 lows and investors positioning for who may next face debt-repayment struggles.
(Bloomberg) — A potential default at Chinese property giant Country Garden Holdings Co. has sent the country’s high-yield dollar bonds to 2023 lows and investors positioning for who may next face debt-repayment struggles.
Securities from Gemdale Corp, Agile Group Holdings Ltd. and Seazen Group Ltd. were Monday’s worst performers in a Bloomberg index of Chinese high-yield dollar bonds, posting losses of more than 10%. That put August’s declines at a minimum 20% for the trio, with notes from a Seazen unit sinking 53% the past two weeks.
Red flags are popping up across China’s financial markets, making investors increasingly anxious about the country’s economic health and intensifying pressure on policymakers to act. As new-home sales have tumbled in recent months and economic readings continue to disappoint, a financial conglomerate with more than 1 trillion yuan of assets under management has missed payments on some investment products.
Selling in Chinese credit hasn’t been limited to junk bonds.
Dollar notes from Longfor Group Holdings Ltd. and China Vanke Co., two of the country’s few private-sector investment grade developers, lost at least 5% on Monday to be the worst performers in a Bloomberg high-grade index. Longfor’s notes have plunged 24% in August, easily the biggest decliner in the gauge, even as a unit reportedly paid a 1.72 billion yuan ($236 million) bond that matures this week.
Gemdale, Agile, Seazen, Longfor and Vanke were among the property firms with the biggest dollar-bond price declines Tuesday morning, according to data compiled by Bloomberg.
Investors selling notes of Gemdale, Seazen and Longfor underscores market concerns about the efficacy of policy help. The trio was among the select group of builders chosen a year ago to be the first property firms to issue state-guaranteed yuan bonds. The effort was intended to be a way for developers deemed as being stronger to tap capital markets for fresh funds.
Results have been mixed, though, with CIFI Holdings Group Co. defaulting on offshore debt not long after selling a state-backed yuan bond. Another initial participant, Country Garden, has run into debt troubles as the clock is ticking on a 30-day grace period after the builder missed two bond coupon payments effectively due Aug. 7. But there have been recent signs that Beijing is reviving the state-guaranteed program.
“For companies like Longfor and Seazen, if they have enough cash flow to cover their operations they may survive this year,” said Amy Kam, a senior portfolio manager at Aviva Investors Global Services Ltd. “But if the market doesn’t take a turn for better by then, how long can they last?”
–With assistance from Alice Huang.
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