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CIFI Holdings Group said that its offshore debts currently stand at US$6.85 billion. Photo: Shutterstock

Chinese developers spook investors as CIFI halts bond payments after Longfor, Country Garden roil markets

  • CIFI Holdings Group is suspending payments on its offshore bonds and terminating discussions with creditors
  • Global rating agency Fitch downgrades Country Garden, while Longfor deals with fallout from chairwoman’s resignation

The situation in China’s housing market is deteriorating further, with three developers once regarded as healthy survivors – CIFI Holdings Group, Country Garden, and Longfor Group Holdings – raising increasing concern among investors.

Shanghai-based CIFI said on Tuesday morning that it will suspend payment on all of its offshore bonds and has terminated all discussions with individual creditors and creditor groups offshore, according to a filing with the Hong Kong stock exchange.

“In order to ensure fair and equitable treatment of all offshore creditors, the group has suspended payment of all principal and interest falling due on the group’s offshore financing arrangements,” the developer said in the filing.

The home seller said its offshore debts currently stand at US$6.85 billion, including US$414 million that is overdue. The company defaulted on a US$318 million bond payment in early October.
The Country Garden Holdings logo adorns a housing development in Zhenjiang, in China’s eastern Jiangsu province on October 31, 2021. The company saw its credit rating downgraded by Fitch Ratings on Monday. Photo: AFP

“We see [the suspension] as negative for CIFI’s share price and believe it will soon go for extension of its offshore debts, like what its peers have done,” said Will Chu, Hong Kong and China property researcher with CGS-CIMB Securities (Hong Kong). “Its monthly contracted sales could deteriorate further in the next few months following its liquidity issues.”

Shares of CIFI plunged as much as 28 per cent on Tuesday morning to HK$0.38, the lowest level since the company started trading in November 2012. The stock closed down 25 per cent at HK$0.39.

CIFI, along with Longfor Group Holdings, Country Garden, Midea Real Estate Holding and Seazen Group, has been regarded as an example of a good developer, having been picked by the government to issue onshore bonds amid the ongoing housing crisis.

Developer Cifi defaults on bond as China’s property crisis deepens

Now three of the five developers on that list are raising concerns.

Country Garden on Monday saw its issuer default rating downgraded by global rating agency Fitch to “BB-” from “BB+”. The agency cited little improvement in the company’s funding access, uncertainty about sales and other factors.

“The downgrade reflects the property sector’s continued poor capital-market conditions, limiting Country Garden’s access to unsecured funding and affecting its financial flexibility,” Fitch said.

Country Garden shares tumbled 9.8 per cent to HK$1.01 on Monday but rose 3.96 per cent on Tuesday to HK$1.05.

Meanwhile, Chongqing-based Longfor watched its shares tumble as much as 23.8 per cent on Monday following its chairwoman’s abrupt resignation.

Senior notes issued by the property firm, maturing in April 2023, also fell to 86 cents on the dollar on Tuesday, as compared to 92 cents on the dollar last Thursday. The company’s shares rose 8.2 per cent on Tuesday to HK$10.82.

Longfor’s market cap loses around US$2.5 billion after co-founder resigns

Wu Yajun, who founded Longfor’s predecessor 29 years ago, resigned from her positions, citing her age and health issues, according to a filing last Friday.

“We are concerned the resignation may have an impact on confidence among Longfor’s stakeholders, for example, suppliers, homebuyers and financial institutions,” UBS analysts including John Lam wrote in a research note on Monday. That could bring pressure on the company’s liquidity, they added.

National contracted sales will continue to decline over the next 12 months while developers’ liquidity will remain under pressure from sluggish sales and tight funding conditions, Moody’s said in a research report on Monday.

“The Chinese government released a number of stimulus measures in late September to boost sales,” said Moody’s analyst Daniel Zhou said in the report. “Nevertheless, rated developers’ sales will unlikely rebound strongly as concerns over economic growth and project completion risk continue.”