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China property
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Zhongliang, unable to borrow because of China’s ‘three red lines’, pushed to brink of default as Covid-19 lockdowns kill property sales

  • The developer is giving its creditors more time to accept an exchange offer on two of its US dollar-denominated bonds
  • Default is ‘inevitable’ if the offer is turned down, says chief financial officer Albert Yau

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The company sold 4.1 billion yuan (US$610 million) worth of homes in April, down 71 per cent from a year ago. Photo: Weibo
Pearl Liu
Shanghai-based property developer Zhongliang Holdings has become the latest victim of China’s “three red lines” deleveraging campaign, at a time when the country’s strict Covid-19 containment policies continue to derail home sales.

The developer is giving its creditors more time to accept an exchange offer on two of its US dollar-denominated bonds. It has extended a deadline originally set for 11pm local time on Tuesday, so that more bond holders can get on board with the payment extension.

“It is a very frustrating decision, as we have tried very hard to pay our debt since last year. But the slump in property sales recently has further hit the sector,” said Albert Yau, Zhongliang’s chief financial officer. “We are calling for the bondholders to give us some more time. If the offer is scrapped, a default could become inevitable – and it is the last thing both the company and the creditors would like to see.”

The company sold 4.1 billion yuan (US$610 million) worth of homes in April, down 71 per cent from a year ago. It was also a large drop from the 6.8 billion yuan sold in March, before a slew of Covid-19 policies were rolled out to contain the latest outbreak.
The weakening in residential sales was the final straw that made the exchange offer necessary. The developer, like many others, had already been facing a liquidity crisis.

Tagged as yellow under Beijing’s three red lines system, Zhongliang is unable to take out new loans worth more than 10 per cent of its current debts, and has found itself struggling to pay its debts.

Creditors holding 90 per cent of the total value of the bonds must agree to the exchange offer if it is to go ahead. The company said it has no other offshore bonds maturing this year.

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