Chinese developer Sinic warns of default on US$250 million bond due next week

Sinic Holdings has US$694 million in dollar bonds outstanding and has already missed domestic payments last month
Borrowing costs for dollar junk-rated debt, which is dominated by Chinese developers, soars to highest level in about a decade with yields at 17.5 per cent

China property

Bloomberg

Published: 3:35pm, 12 Oct 2021

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Sinic Holdings Group has become the latest Chinese developer to warn of imminent default, as rising contagion risk leaves investors guessing on who else may face a credit crunch.

The Shanghai-based developer said in a Hong Kong stock exchange filing it does not expect to repay a US$250 million dollar bond due on October 18 and that may trigger cross-default on its two other notes. The firm has US$694 million in dollar bonds outstanding, according to Bloomberg-compiled data. The firm missed domestic payments in September, sparking an 87 per cent stock plunge.

Sinic’s woes are another sign of the hidden risks for investors in China’s beleaguered property debt market as uncertainty over the future of Asia’s biggest issuer of junk bonds, China Evergrande Group, weighs on the sector. A sell-off has accelerated since a surprise default by Fantasia Holdings Group last week, sparking concerns about its distressed peers.

Borrowing costs for Chinese dollar junk-rated debt, which is dominated by property firms, have soared to their highest in about a decade with yields at 17.5 per cent, according to a Bloomberg index. That has prompted refinancing risks for the sector as access to a key source of funding dries up, threatening a wave of defaults if there are no signs of authorities easing their clampdown on the sector.

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In the meantime, property firms are scrambling to avoid outright default on their upcoming obligations. Modern Land (China), a Beijing-headquartered developer with US$1.35 billion of dollar bonds outstanding, is asking holders for a three-month extension to pay off a note due on October 25.

Xinyuan Real Estate, which has US$760 million of dollar bonds, is proposing what Fitch Ratings considers a distressed debt exchange involving a dollar note set to mature on Friday.

Property firms’ missed payments have made up 36 per cent of the record 175 billion yuan (US$27.1 billion) in onshore corporate bond defaults this year, Bloomberg-compiled data show.

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In a related development, Fantasia said two directors quit, leaving the troubled Chinese developer in breach of Hong Kong listing rules.

Fantasia said Ho Man resigned, expressing concern “that he had not been kept fully informed of certain crucial matters of the company in a timely manner.” Another independent non-executive director, Wong Pui Sze, also left, saying she had no disagreement with the board.

The departures leave Fantasia with only one independent non-executive director. According to listing rules, it must have at least three, of whom at least one must have appropriate qualifications or accounting or related financial management expertise, the company said in a stock exchange filing.

Fantasia said it will seek to fill the vacancies “as soon as practicable.”