Hong Kong builder Wang On cuts holding in China South City junk bonds as losses from bets on Chinese developers mount

Hong Kong-based builder sold more of its investment in junk-rated notes issued by troubled Chinese developer, widening losses
Wang On Group expects to suffer a HK$32.9 million (US$4.2 million) hit to its bottom line in the financial year ending March 31

Banking & finance

Yujie Xue

Published: 2:28pm, 9 Feb 2024

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Hong Kong property developer Wang On Group has cut its holding in junk-rated dollar-denominated bonds issued by China South City Holdings, widening losses from its bets on the troubled mainland Chinese developer and its peers.

The firm sold US$8.4 million face amount of China South City notes in the open market for US$3.8 million from February 2 to 8, according to its stock exchange filing on late Thursday. As a result, Wang On Group expects the incur a HK$32.9 million (US$4.2 million) loss in the financial year ending March 31, it added.

The sale provides the group with “a good opportunity to realise their investments in the China South City Notes, and to reallocate resources for general working capital and other investment opportunities when they arise,” Wang On Group said in the filing.

Statues watch over Exchange Square in Central, Hong Kong, home of the Hong Kong stock exchange. Photo: Yik Yeung-man

Shares of Hong Kong-listed China South City tumbled 9.4 per cent to HK$0.21 on Friday, extending the total loss over the past 12 months to 62.8 per cent. Wang On traded unchanged at HK$0.037, having lost 26 per cent of its value in the past year.

Wang On has also invested in junk-rated bonds issued by other debt-laden Chinese developers, including Guangzhou R&F Properties and Yuzhou Group, according to its exchange filings. Chinese developers have defaulted on more than US$100 billion of offshore bonds since Beijing imposed its “three red lines” policy to curb excessive leverage in the industry.

State-backed China South City is one of many developers in China that fell into distress amid the Covid-19 pandemic, slumping home sales and the Chinese government’s moves to tighten the reins on the bubble-prone real estate sector.

China property defaults won’t stop banks lending to troubled developers: Goldman

China South City issued a notice to the Hong Kong stock exchange in December that it would not have enough cash to pay interest on its foreign-currency debt as it struggles to win support from creditors to restructure five bonds totalling US$1.35 billion, maturing in 2024.

The company averted a default on an offshore debt after winning consent from creditors to extend the maturity of a US$235 million July 2024 note by 37 months to August 2027 while reducing the annual coupon by half to 4.5 per cent.

However, it failed to garner enough support to restructure four other dollar-denominated bonds maturing in April, June, October and December this year with a combined face value of US$1.11 billion, the company said in a filing in December.

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