China Property Debt Crisis Deepens as State-Aided Firm Defaults
Published 13 October 2022 04:58:31.560 GMT
(Bloomberg) -- A Chinese developer with state backing for domestic funding has defaulted on a convertible bond and warned it may face a similar fate on offshore debt if obligations go unmet, fueling concern about Beijing’s ability to contain a broader property debt crisis.
CIFI Holdings Group Co. has failed to deliver interest payment on a 6.95% Hong Kong dollar convertible note originally due Oct. 8, the bond’s trustee said in a notice dated Tuesday to Euroclear, one of the world’s top clearing houses. China Construction Bank (Asia) Corp., the trustee, said the payment miss constitutes an event of default.
CIFI didn’t respond to Bloomberg News’ request seeking comment. In a Thursday filing to the Hong Kong stock exchange, the company said it has experienced a delay in remittance of cash offshore to meet scheduled interest and amortization payments due to the recent long public holiday in China.
The developer added that it has been proactively engaging with creditors to address the issue in a bid to reach consensual solutions, adding that its commercial operations remain normal.
However, CIFI also warned that if it doesn’t meet its offshore debt obligations in a timely manner or is unable to implement appropriate consensual solutions with creditors, “events of default may occur.”
Separately, two holders of the Shanghai-based developer’s 4.375% dollar note due 2027 said earlier they have yet to receive coupon payment originally due Wednesday for the note.
The investors asked not to be identified because they’re not authorized to speak about the matter publicly.
The private developer’s repayment setbacks are set to heighten concerns about the effectiveness of authorities’ efforts to ease a cash crunch that has already triggered record defaults in the sector. CIFI’s woes are particularly worrying because it has just recently joined a select group of builders that enjoy state guarantees when tapping domestic funding.
“It’s just another surprise for investors, who are becoming increasingly skeptical about any private developer,” said Charles Macgregor, head of Asia at Lucror Analytics. “It’s really too late for authorities to support the sector now,” he added, saying confidence among homebuyers and creditors appears “terminally eroded.”
CIFI’s bond blowup has extended a selloff in the shares of Chinese developers, with a Bloomberg Intelligence gauge falling as much as 2.5% Thursday and poised for its sixth-straight daily loss. China high-yield dollar notes, dominated by developers, also weakened this morning, according to traders, poised to push a Bloomberg index back to August’s record low.
“CIFI’s default on the convertible bond may make investors nervous and spread the concern on other quality private developers that have issued state-backed guarantee bonds,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd.
CIFI’s convertible bond in question had HK$88 million of interest due Oct. 8, while coupon on the firm’s dollar note due 2027 totals $9.14 million, according to data compiled by Bloomberg. The Chinese builder has a 30-day grace period to make the interest payment for the dollar note before an event of default can be declared, according to the note’s offering circular.
On Wednesday, Fitch Ratings downgraded CIFI further into junk territory, to CC from BB-, citing uncertainty about timely debt-servicing abilities. The risk assessor subsequently withdrew its ratings, saying CIFI “has chosen to stop participating in the rating process.”
By Alice Huang, Lorretta Chen and Dorothy Ma
--With assistance from Emma Dong, Charlotte Yang and Wei Zhou.