Chinese Developer CIFI Struggles After Raising Money With Government Help
Published 29 September 2022 12:10:04.976 GMT
(Dow Jones) -- HONG KONG -- Even a government bond guarantee wasn't enough to prevent a crisis of confidence at one of China's property developers, which struggled this week to convince investors that it can repay its debt.
Earlier this month, CIFI Holdings (Group) Co., one of the country's top 20 developers by contracted sales, issued the equivalent of $167 million in new yuan-denominated bonds that were insured against default by a government-backed entity. It was part of a select group of six real-estate companies to take part in a pilot program designed to help private-sector developers raise money and give investors assurance that they would get their money back.
Days later, CIFI's Hong Kong-listed shares fell to a record low and prices of its dollar bonds plummeted following media reports that said the company was having trouble making payments on some of its onshore obligations, including a trust product. The reports also cited an internal letter from CIFI's chairman that said the company could face "unprecedented challenges" to its cash flow in the coming months.
The developer tried to address the reports in a regulatory filing, but its stock and bond prices tumbled further Thursday.
A CIFI dollar bond that comes due in 2025 was recently bid at around 19 cents on the dollar, according to Tradeweb, a deeply distressed level that indicates investors expect the company to default on the debt. The company's shares have lost half their value in the past week.
CIFI said severe difficulties and challenges created by China's real-estate industry downturn and the Covid-19 pandemic have brought "pressures to the operations and cashflow of the enterprises."
It said the letter by Lin Zhong, its chairman, had been meant for certain employees and was only for internal circulation. It added that the contents of the letter shouldn't imply that the company can't pay its debts as they come due.
The company also said it had raised money from an equity investment trust product to finance a property development in Tianjin.
"The market sentiment on the local housing market has affected the progress of development and sales of such project, thus affecting the cash distribution of the said investment trust product," CIFI said. It added that it is in discussions with the financial institution that issued the product to reach a solution.
CIFI didn't respond to a request for comment.
China's property downturn, which began last summer, has already caused dozens of Chinese developers to default on their U.S. dollar bonds. Some companies that appeared to be resilient and financially stronger at the start of this year are now facing more financial pressure as their sales of new apartments have slowed sharply.
The recent developments around CIFI could negatively affect the developer's future attempts to raise more money. The negative headlines could "dampen its access to financing, which is critical for the company to meet debt repayment," Leonard Law, a Senior Credit Analyst with Lucror Analytics, wrote in a recent note.
CIFI was founded in 2000 in Shanghai. Last year, it was ranked the 13th largest developer in China by contracted sales, according to China Real Estate Information Corp., an industry data provider.
By Cao Li