Bonds by Chinese property firms fall further after collapse of Zhejiang Xingrun

Bonds by Evergrande and Agile decline after Xingrun collapse intensifies default fears

PUBLISHED : Wednesday, 19 March, 2014, 1:26am
UPDATED : Wednesday, 19 March, 2014, 1:26am

Bonds issued by some mainland real estate companies extended a slump after the collapse of a developer stoked concern that defaults are starting to mount as the economy slows and the government reins in lending.

The 8.75 per cent notes due in 2018 sold by Evergrande Real Estate, the mainland's fourth-largest developer by market value, fell 0.25 US cents on the US dollar yesterday, sending the yield to 10.345 per cent, the highest since they were sold in October. The yield on Agile Property's February 2017 notes jumped 20 basis points to 7.459 per cent, the highest since they were sold last month.

Government sources said on Monday that closely held Zhejiang Xingrun Real Estate did not have enough cash to repay 3.5 billion yuan (HK$4.4 billion) of debt. The mainland's housing market is cooling, with the value of home sales falling 5 per cent in the first two months of this year after local governments stepped up measures to curb rising prices.

"Chinese developers are extremely exposed to the easy credit that's used to finance purchases and investment," said Patrick Chovanec, chief strategist at Silvercrest Asset Management. "When credit is reined in even slightly, it undercuts demand."

The collapse comes less than two weeks after Shanghai Chaori Solar Energy Science & Technology became the first mainland company to default on its onshore corporate bonds.

The yield on Evergrande's US$1.35 billion of 13 per cent bonds due in January next year rose 88 basis points to 8.62 per cent on Monday, the highest since August 23. Shenzhen-based Kaisa's 8.875 per cent notes due in 2018 dropped to a seven-month low on Monday, sending the yield past 10 per cent for the first time since August.

Zhejiang Xingrun did not have cash to repay creditors, officials said. The company's majority shareholder and his son, its legal representative, had been detained and faced charges of illegal fundraising, they said.

Mark Bayley, a credit strategist at Aquasia, said in a report yesterday: "This is a far more serious situation than Chaori Solar's default as it hits right at the heart of China's property boom. The real danger now is that banks will considerably tighten liquidity afforded to the property [sector]."