Property bond losses pass US$82bil

HONG KONG: China’s debt-saddled property developers have seen their offshore bonds lose US$82bil (RM343bil) in value, and more losses and defaults are likely, analysts at Bloomberg Intelligence say.

Investor concerns about concealed debt at Logan Group Co fuelled a heavy sell-off in Chinese dollar bonds, both investment-grade and and high-yield.

A key interest rate cut by China wasn’t enough to stem a drop in property stocks, with traders calling for more policy support as the economy slows.

The market capitalisation of China property’s offshore bonds has dropped from US$151bil (RM632bil) of par value to US$69bil (RM289bil) of market value, indicating more than US$80bil (RM335bil) in investor losses, Bloomberg Intelligence credit analyst Andrew Chan wrote in a note.

This excludes losses from onshore bonds.

If China refrains from aggressively easing property policy, more losses and defaults could be coming, he said.

Should a developer with a national footprint run into trouble, home buyers worried that projects may not be completed could end up avoiding purchases from all private property firms.

China’s debt-saddled private property developers face growing risks of a liquidity crunch, with home buyers and bondholders’ shattered confidence raising the specter of broader financial contagion, Bloomberg Intelligence real estate analysts Patrick Wong and Kristy Hung wrote in a note.

Some companies may take a cue from Guangzhou R&F Properties Co by extending debt terms or taking a haircut on portions. Companies may also follow Sunac China Holdings Ltd and Shimao Group Holdings Ltd with equity placements at ultra-low valuations and deep discounts, they said.

Top state-owned developers such as China Overseas Land & Investment Ltd and China Resources Land Ltd, with balance sheets exceeding US$1 trillion (RM4.2 trillion), could be well-positioned for mergers and acquisitions as they buy from distressed, private-sector competitors at fire-sale prices.

Logan Group Co bought back shares for HK$5.5mil (US$706,000 or RM2.9mil), paying HK$5.47-HK$5.86 (RM2.94-RM3.15) per share, it said in a statement to the Hong Kong stock exchange on Monday evening.

The company bought three million of its shares for HK$17mil (RM9.13mil) on Jan 14.

Country Garden Holdings Co bought back an aggregate principal amount of US$5mil (RM21mil) of its 4.75% notes due July 2022 and US$5mil (RM21mil) of its 7.25% notes due April 2026, according to a statement to the Hong Kong stock exchange late Monday.

The repurchased notes will be cancelled and the company will monitor markets for further bond buying.

In the latest ratings downgrade to hit China’s property sector, Times China Holdings Ltd’s long-term rating was cut by S&P Global Ratings to B+ from BB-, putting it further into junk territory, with its outlook changed to negative from stable.

According to a statement from the local housing regulator published Thursday and reported Monday, the government of West Coast New Area in the east Chinese city of Qingdao halted sales of two home projects of Country Garden and a project of China Aoyuan Group Ltd because of violations in sales.

The authority told the two developers to rectify problems before allowing them to resume sales. — Bloomberg

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