More Chinese developers fail to meet debt obligations

China Chinese President Xi Jinping

Central China Real Estate and Leading Holdings Group failed to meet US dollar bond payments, occurring amid renewed home sales softness and a lack of aggressive stimulus.

Central China Real Estate said it did not pay interest on a note before the end of a grace period last Friday and that it would suspend payments on all offshore debt.

Smaller peer Leading Holdings Group disclosed in its own exchange filing last Friday night that it had not paid the entire US$119.4 million (S$161.5 million) of principal plus interest due on a dollar bond issued a year ago as part of a debt swap.

Both firms also said they would engage external advisers and work on holistic solutions for their offshore debt. Central China is the country’s 33rd-largest builder by contracted sales, according to China Real Estate Information Corp, while Leading Holdings is not in the top 100.

The delinquencies followed several Chinese builders last week remitting funds for interest payments at the end of 30-day grace periods or shortly afterwards. The property sector’s unprecedented cash crunch resulted in record defaults on Chinese issuers’ dollar bonds in 2022 and still-elevated missed payments so far in 2023.

Expectations have been growing that Chinese officials will unveil more stimulus for struggling sectors including real estate.

But investors were left disappointed last week after Chinese banks cut their mortgage reference rate by less than some anticipated. A slow stimulus roll-out is adding to concerns about the country’s economy.

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DBS Bank strategist Chang Wei Liang said China’s developers continue to face scepticism from investors amid a renewed slowdown in sales.

Central China’s announcement is likely not a big market surprise, given trading levels for the firm’s shorter-term dollar bonds, according to Ms Zerlina Zeng, senior credit analyst at CreditSights.

“Most smaller privately owned developers still face dire liquidity conditions because of the muted recovery of contracted sales,” she said.

The Central China and Leading Holdings notes on which payments were not made have been indicated at below 30 cents on the dollar much of this year, according to data compiled by Bloomberg. Such prices are generally considered deeply distressed levels and signal investor doubts about on-time payment.

Central China’s parent sold a 29 per cent equity stake in the builder less than a year ago to a government-owned entity in its home province of Henan. Market optimism, stoked by hopes that the move would provide state support for the builder, did not last. Central China exchanged three dollar notes in April that were due to mature in 2023.

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