Cifi defaults on bond, triggering sell-off of developers, fears Chinese property debt crisis is spreading
- Cifi Holdings defaults on US$318 million convertible bond due 2025, blaming the National Day holiday for the delayed payment
- Bonds and shares of Country Garden, Longfor and Seazen slump as investor confidence ‘totally collapses’
Bondholders of Cifi’s HK$2.5 billion (US$318 million) convertible bond with an interest rate of 6.95 per cent due in 2025 did not receive the payment they were due on October 8 – payable on Monday as October 8 fell on a weekend – according to a notice from China Construction Bank (CCB), a trustee of the creditors.
“A notice has been sent to the issuer and subsidiary guarantors informing them that an event of default has occurred,” CCB said.
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Until recently the private developer was seen as having a relatively healthy balance sheet, a view further buoyed by a government pledge to guarantee its onshore bonds.
Shanghai-based Cifi said it had “experienced delay in remittance of cash offshore from mainland China to meet certain scheduled interest and amortisation payments” because of the National Day holiday in mainland China, which ran from October 1 to 7.
“The group has been proactively engaging with relevant creditor groups to address these delays with a view to reaching consensual solutions,” it said in an exchange filing on Thursday. “As at the date of this announcement, the commercial operations of the group remain normal.”
Country Garden’s shares plummeted 9.8 per cent, while its notes due January 27, 2024, are down 4.6 cents on the dollar so far this week.
Hong Kong-listed Longfor Group Holdings’ shares dropped 6.4 per cent, while its bonds due September 16, 2029, have slipped by 3.082 cents on the dollar since Monday. Seazen Holdings fell 1.3 per cent in Hong Kong.
Cifi’s bond default comes after it reportedly missed payment of some non-standard debt on Friday at a joint venture property project in the northern Chinese city of Tianjin, according to intelligence provider Reorg Research.
Cifi’s share price has shed another 21.2 per cent this week.
The failed payment of the convertible bond could trigger cross-defaults on Cifi’s other offshore debt, Japanese brokerage Nomura said in a note on Thursday.
The developer acknowledged in its stock exchange filing that “events of default” may occur, which may lead to creditors being entitled to demand accelerated payment.
CGS-CIMB Securities on Friday downgraded Cifi’s shares to “hold” and lowered the target price to HK$0.92 because of the higher chances of the firm delaying debt payments.
“After our downgrade of Cifi last week, we are not totally surprised about the [default], given its tight liquidity,” said Raymond Cheng managing director of CGS-CIMB Securities.
He expects Cifi to request a delay in debt payments of at least a year.
“Basically, investors’ confidence in China property has totally collapsed,” he said.
