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China’s property sector has been buffeted by a series of headwinds. Photo: Reuters

Chinese developer CIFI Holdings’ shares slump to record low on deteriorating finances, analyst downgrade

  • The shares slumped 8 per cent on Friday to an all-time low of HK$0.66, taking losses for the past month to more than 64 per cent
  • CIMB Securities on Friday downgraded CIFI’s shares to ‘hold’ and lowered the target price to HK$0.92 due to higher chances of the firm delaying debt payments

The crisis in China’s housing market is deteriorating quickly, with yet another developer in the firing line.

The latest to get engulfed in the crisis is Shanghai-based CIFI Holdings, whose shares and bonds plunged after analysts downgraded the developer’s outlook because of its deteriorating finances.

“Although CIFI has raised a few billion yuan in the past 12 months through equity, asset disposals and onshore debt issuance, the efforts seem insufficient to meet its liquidity needs,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, who downgraded the stock from “buy” to “hold” on Friday.

The target price was lowered to HK$0.920 from HK$3.70 due to a higher probability of the company delaying debt repayments, CGS-CIMB said.

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CIFI’s shares fell 8 per cent on Friday, closing at a record low of HK$0.66. The shares have lost 64.04 per cent in the past month.

A senior note due in January 2023 traded at 26.7 cents on the dollar on Friday, sliding from 80.8 cents on September 27, before credit intelligence provider Reorg reported that it had missed payment on certain non-standard debt at a joint venture property project in the northern Chinese city of Tianjin.

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

The company issued a three-year 1.2 billion yuan (US$169 million) note with a coupon of 3.22 per cent guaranteed by the state-owned China Bond Insurance on September 21.

In a filing to the Hong Kong stock exchange last Wednesday, CIFI admitted that it was facing difficulties and had missed cash distribution with regard to an investment trust product used to raise funds for the project in Tianjin, as sales were not good.

The company said it would “continue to take all practical steps to enhance its efforts to improve its cash flow position”, while noting that the nation’s real estate industry was “facing severe difficulties and challenges and the Covid-19 epidemic situation remains volatile”.

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JPMorgan downgraded the developer twice recently. It downgraded the company’s shares from “buy” to hold on August 31 followed by “hold” to “sell” on September 30, expecting the shares to fall to HK$0.70.

“Although CIFI may still be one of the ‘survivors’ by avoiding default on public bonds, we believe the [missed cash distribution] incident will still hamper investors’ confidence on CIFI’s liquidity situation and its ability to manage the [Tianjin] joint venture risk,” Karl Chan wrote in the research note on September 30.

Investors are unlikely to give CIFI the benefit of doubt given the current sentiment surrounding China’s property sector, Chan said, adding that until there is proof of easing in liquidity, CIFI’s share price could be under pressure.

China’s 18.2 trillion yuan housing industry’s woes have spread to the rest of the economy, with banks, bad-debt managers and upstream and downstream suppliers of property developers among those affected.

Home builders have been squeezed by falling sales and a debt crisis compounded by Beijing’s “three red lines” policy. This has constricted borrowings by developers and forced China Evergrande Group and peers such as Sunac China Holdings to default on their loans.

Despite efforts by policymakers to support the economy with a variety of measures ahead of the 20th party congress this month, an increasing number of developers, including state-backed firms like CIFI, have found it difficult to stand on their feet.

A file photo of CIFI Holdings chairman Lin Zhong from September 2014. Photo: SCMP

In a letter to employees last week, CIFI chairman Lin Zhong said the company’s priority now was to survive, as property sales in China remain sluggish amid Covid-19 lockdowns, an economic slowdown and boycott of mortgage payments in dozens of cities.

“Hardship and ordeal will persist for quite a long period of time,” Lin said in the letter, which was widely distributed on Weibo and confirmed by the company in an exchange filing.

Lin said the mortgage boycotts staged across the country since July have resulted in tightening cash withdrawals from escrow accounts by local authorities, and it was putting further pressure on developers’ liquidity.

“In the coming months, CIFI’s cash flows will meet unprecedented challenges,” he said.

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