Evergrande crisis: distressed exchanges, default waivers build as Chinese developers wonder, where’s the policy stimulus?
- Zhenro and Jingrui are joining other cash-strapped developers in delaying debt repayments, weakening bond covenants
- China’s housing market is facing the worst slowdown in a decade after a months-long decline in home sales
The two developers this week sought to delay repayments on dollar-denominated bonds worth US$1.2 billion maturing this year, citing a liquidity squeeze. They are also asking bondholders to waive some default clauses on US$3.5 billion of notes, weakening their covenants.
The latest troubles suggest efforts by policymakers to pump liquidity and ease borrowing costs have not come fast enough to relieve their burden. Others believe the measures are not aimed at bailing out the nation’s indebted developers even as many have been shut out of bank and bond-market financing.
“Bond market access will remain difficult for the sector as bond price volatility remains high and investors’ and lenders’ risk appetite stays low,” said Kelly Chen, an assistant vice-president and analyst at Moody’s. “Thus, it will increase refinancing risk for financially weak developers in particular.”
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Chinese real estate giants Evergrande and Kaisa continue unloading assets to cover debt
Before Zhenro and Jingrui, peers including Guangzhou R&F Properties, Kaisa Group and Yuzhou Group had also embarked on a similar debt management strategy to delay reckoning or sidestep defaults.
China, meanwhile, has said the housing market is not the focus of short-term stimulus tools to spur the economy. Wang Menghui, Minister of Housing and Urban-Rural Development, on Thursday said authorities will safeguard buyers’ rights and handle late delivery of homes by cash-strapped developers.
In a February 22 filing, Zhenro asked bondholders to exchange five bonds due between March and September this year totalling US$1.05 billion into new securities maturing in March 2023. It also planned to amend covenants on eight other bonds with a combined face value of US$2.34 billion.
The Shanghai-based developer earlier this year exercised an option to redeem a US$200 million perpetual bond to preempt a punitive step-up in annual coupon. However, it ran out of cash as the March redemption date approached, triggering a plunge in its bonds in the secondary market.
Zhenro’s top management asked debtholders to give it more time as it engaged state-owned enterprises on asset sales, according to discussions over a call on Wednesday. The developer said it was in talks to raise 4 billion yuan of cash. Its contracted sales fell 30 per cent in January from a year earlier.
Founder Ou Zongrong, a Chinese People’s Political Consultative Conference delegate, the mainland’s top advisory body, did not show up during the call.
Meanwhile, Jingrui Holdings has asked holders of its US$190 million March 2022 bonds to exchange into new unspecified bonds to ease its near-term repayment burden. It is also seeking consents to dilute the covenants on five bonds with a face value of US$1.2 billion, according to its February 22 filing.
