HONG KONG | SHANGHAI: Cash-strapped Chinese developers are scrambling to negotiate new terms with their bondholders to avoid defaults, with Shimao Group and Yuzhou Group the latest seeking extensions on their maturing debt.
The market is also watching the outcome of China Evergrande Group’s meeting with onshore bondholders, as the voting period to approve an extension will end on Thursday. The firm has so far met payments on onshore bonds though it has defaulted on some offshore bonds.
Struggling with more than $300 billion in liabilities, the world’s most indebted property company is seeking a six-month delay in the redemption and coupon payments of a 4.5 billion-yuan ($157 million) bond.
Chinese developers are facing an unprecedented liquidity squeeze due to years of regulatory curbs on borrowing, leading to a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers’ shares and bonds.
The World Bank’s economic prospects report said earlier this week a severe and prolonged downturn in China’s real estate sector would have significant economy-wide reverberations, as its developers’ combined onshore and offshore liabilities amount to almost 30% of the country’s GDP.
It warned of risks and potential costs of contagion from a sharp deleveraging of China’s large property firms.
Shanghai-based Shimao will hold online meetings with creditors in two asset-backed securities (ABS) on Jan. 17, to vote on payment extension proposals, according to documents obtained by Reuters on Thursday.
The two onshore ABS products – worth 1.17 billion yuan ($183.91 million) in total – are to mature later this month, and Shimao is seeking to extend the payment deadlines to the end of 2022 while making some payments in stages before the new deadline, according to the documents, and confirmed by sources.
Yuzhou, founded in the eastern coastal city of Xiamen, also announced an exchange offer for two of its 2022 dollar bonds due later this month – worth a total of $582 million – to extend the maturities by one year to avoid default.
It expects a delay in coupon payments totalling $110 million that are due in January and February, Yuzhou said in a filing. It is also seeking consent from holders of all of its other $4.5 billion dollar bonds to amend the terms that would help it avoid cross defaults if other bondholders seek repayment.
More may come
Nomura estimates the sector’s cash crunch could intensify with firms needing to meet onshore and offshore maturities totalling around 210 billion yuan each in the first and second quarter, up from 191 billion yuan in the fourth quarter of 2021.
Developers are also desperately raising funds to repay debt.
Major player Sunac China Holdings Ltd said on Thursday it would raise $580.1 million from a share sale.
Media reports said on Wednesday, citing company registry records, that shares worth 110 million yuan in a few companies held by Sunac have been frozen by a Shenzhen court.
Responding to the reports, Sunac said the freeze was caused by a “minor dispute” between the firm and its partners, but the parties have come to a reconciliation and are resolving to unfreeze the shares.
Separately, smaller developer Agile Group pledged 65.6 million shares of its property management unit, A-Living Smart City Services, on Jan. 6 for an unspecified amount, stock exchange filing showed.
Shares of Chinese developers are generally down on Thursday, with Sunac and Agile tumbling 19% and 12%, respectively, by early afternoon. Shimao fell 7.6% while Yuzhou shed 7%. Evergrande eased 3%.
One of Yuzhou’s yuan-denominated bonds tumbled 21.8% in the morning before it was ordered to temporarily halt trading.
Two Shanghai-traded bonds of Shanghai Shimao were also temporarily suspended but after surging over 30%.