China Vanke, Longfor Bonds Extend Rally After Regulator Meeting

Published 8 November 2023, 04:05:28.172 GMT
By Xinyi Luo

​(Bloomberg) -- Dollar bonds for two Chinese investment-grade developers continued to rally Wednesday after the country’s central bank and regulators discussed with some builders their financing needs and liquidity.

A Longfor Group Holdings Ltd. note due 2028 climbed 4 cents to 52 cents and China Vanke Co. bond due 2029 rose 2 cents to 58 cents. Investors generally consider below 80 cents as a threshold for distress. Developers’ shares also rose.

The two firms added to gains that made them the best performers to start November in a Bloomberg index of Asia investment-grade dollar bonds. The companies’ notes in the gauge respectively returned 18% and 44% in the week through Tuesday, following October losses of at least 25% each that were both builders’ largest monthly declines in a year.

Credit market focus in recent months has been on a group of Chinese developers which have partial state ownership, have yet to miss a bond payment or continue to hold an investment-grade rating. Last year’s largest builder by contracted sales, Country Garden Holdings Co., had a debut dollar-bond default in October.

The People’s Bank of China participated in a seminar Tuesday that included other government officials and regulators as well as builders including Vanke, Longfor and Gemdale Corp., according to a Cailian report. All three firms are among China’s 10 biggest by sales.

The meeting occurred a day after Vanke received an unusually strong show of support from officials in its hometown of Shenzhen, helping fuel record gains in some of its dollar bonds. Longfor debt also rallied Monday amid Vanke’s surge.  But there hasn’t been a broad credit rally among developers, a sign that Beijing has yet to find the solution to stem a property-debt crisis in its fourth year as new-home sales are back to declining after a brief uptick earlier in 2023.

The local authorities’ support for Vanke should lift sentiment for builders that have at least partial state ownership and strong fundamentals, said Leonard Law, senior credit analyst with Lucror Analytics Pte. But it’s “unlikely to benefit those that have already defaulted” or be a turning point for the wider industry, he added.

Junk-rated builders have seen significantly smaller returns so far this month than Vanke or Longfor. Among developers, Yanlord Land Group Ltd. gained 6.9% through Tuesday, the most in a Bloomberg index of Chinese high-yield dollar bonds issuers.

Meanwhile, institutional investors continue to pare their exposure to such debt. Fidelity International Ltd.’s par value of Chinese property firms’ junk dollar notes plunged 43% to $1.16 billion in the month ended Nov. 3, according to Bloomberg Intelligence based on the latest publicly disclosed data. Its holdings were $3.9 billion in February.