Investors brand Greenland’s bond payment extension unfair as credibility of state-backed companies comes into question

Chinese developer Greenland Holdings’ plan to delay repayment of a US$488 million dollar bond has been branded unfair by investors and raised concerns over the credibility of state-owned enterprises in the offshore bond market, the South China Morning Post has learned.

The Shanghai government-backed property company has sought to extend the bond, which has a coupon of 6.75 per cent, by a year after the city’s recent lockdown damaged its business. Payment had been due on June 25.

Two bondholders told the Post they are concerned because the extension means the bond would be payed later than other dollar bonds due later this year. One of them is considering legal action if the concerns are not addressed.

Their plight highlights the ongoing debt crisis of highly leveraged Chinese developers, as the ripple effect extends to government-backed names that investors once placed their faith in. The market is re-examining state-backed companies that were deemed safe bets, and this could have a longer-term impact on investor confidence in Chinese issuers.

Dhiraj Bajaj, a holder of the June 25 bond and head of Asia credit at Lombard Odier, said: “This significantly hurts the Shanghai Sasac (State-owned Assets Supervision and Administration Commission) involvement in any companies going forward and weakens the credibility of the other companies backed by municipal governments which are not as strong as Shanghai.”

Sasac is the authority managing and regulating state-owned assets and companies.

Greenland’s proposal would mean around US$1.3 billion of bonds due before next June being payed earlier than the delayed batch, said two bondholders who declined to be named.

“Many offshore investors are very angry,” said one of them. “Other property developers usually extend several dollar bonds together, but now the ones maturing earlier could be paid later than the others, it’s unfair.”

Greenland declined to comment.

The Shanghai government owns a 46.4 per cent stake in Greenland, through two state-owned enterprises (SOEs) – Shanghai Chengtou Group Corporation and Shanghai Land Group – according to the developer’s 2021 annual report.

It is often referred to as a state-owned company as it is close to the technical threshold of 50 per cent, though many call it a semi-SOE, according to creditors and real estate analysts.

The delay in payment also dents the credibility of local government financing vehicles – companies set up by local authorities to fund infrastructure projects – one of the creditors said.

Greenland proposed the delay on May 27, saying it had been hit hard by the two-month lockdown of Shanghai, the financial and commercial centre of China.

It told investors the lockdown – introduced to contain an outbreak of the rampant Omicron variant of Covid-19 – had had a serious impact on the disposal of some assets and transactions, the Post has learned. If the impact of the pandemic subsides, the company will have little problem repaying debt in the second half of the year, company executives assured creditors.

Greenland has six dollar-bonds due before June 2023, maturing in August, September, November, December, February and April according to Bloomberg data.

The crisis at semi state-owned companies is hurting their peers in the offshore dollar bond and equity markets.

In Hong Kong, their share prices are down. Greentown China Holding has slid 6.3 per cent since May 27 when Greenland proposed the extension to creditors. In the same period, Sino-Ocean Group Holding has dropped 6.5 per cent.

Greentown’s notes due in 2025 traded at 90.203 cents on the dollar on Tuesday, versus 92.368 cents on May 26.

Raymond Cheng, managing director of CGS-CIMB Securities, agreed that Greenland’s extension of the bond is “unfair” to holders of the June notes.

“Similar semi state-owned companies in the market are affected by the incident, people are re-evaluating their risks even though their major shareholders are SOEs,” he added.

If more such state-owned firms have problems repayming their debt, the knock-on effect on other industries will become greater, he cautioned.

Greenland’s Hong Kong unit, meanwhile, said it has repaid US$150 million of notes that matured on June 3.

“Greenland Hong Kong paid the dollar bond on time, which undoubtedly shows the company’s stable development, decent financials and orderly development of various operational activities,” it said in a press release.