Evergrande crisis: developer Modern Land (China) cancels US$250 million bond repayment plan on liquidity issues
- Modern Land had intended to repay a portion of its US$250 million bond due October 25, extend the deadline on the balance by three months
- The decision puts further stress on the China property market amid concerns about default risks at Evergrande, other developers
At the same time, Chinese Estates Holdings, once Evergrande’s second-biggest shareholder, said it sold its holdings in high-yield bonds issued by another Chinese developer Kaisa Group Holdings at a loss. The sales this week at prevailing market rates came just days after Kaisa said it made an interest payment due on its debt last week.
Late Wednesday, Beijing-based Modern Land scrapped a solicitation process related to a 12.85 per cent US$250 million bond due on October 25, citing liquidity issues and saying the exercise “would not be in the best interest of the company” and its stakeholders. It had earlier proposed to pay US$87.5 million of the principal and extend the payment deadline on the balance by three months.
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The decision by Modern Land to scrap its repayment plans is another blow to investors holding Chinese high-yield bonds issued by developers as the industry continues to show cracks from months of policy tightening by Beijing.
Many cash-strapped developers have been shut out of the loan and bond markets since Chinese authorities added its “three red lines” rules last year to control excessive leverage in the sector. The distress over Evergrande and other developers, such as Fantasia Holdings and Xinyuan Real Estate, has unnerved investors and property buyers alike.
A government report this week showed new home prices across major mainland cities shrank last month for the first time in six years, as confidence among homebuyers weakened amid the fallout triggered by the crisis surrounding Evergrande’s ability to repay its US$305 billion in outstanding liabilities.
Evergrande has missed five interest payment deadlines on its offshore debt since late September, according to bondholders, and could be declared in default as soon as this weekend as a 30-day grace period on the first of those missed payments is set to expire.
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“In view of the difficulties, challenges and uncertainties in improving its liquidity, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts,” Evergrande said.
Kaisa, which became the first Chinese property developer to default on its dollar-denominated debt six years ago and remains a heavy borrower after a debt restructuring several years ago, was downgraded by Moody’s Investors Service this week.
On Monday, Kaisa said it had paid a US$39.4 million coupon payment due on October 16 and planned to transfer funds to pay another interest payment due on Friday. Kaisa’s shares rose as much as 10 per cent on Thursday morning in Hong Kong.