Workers walk past a construction site of residential buildings by property developer Country Garden in Kunming, Yunnan province, China Sept 17, 2019. REUTERS/Wong Campion/File photo
SHANGHAI/SYDNEY -Stocks and bonds in China’s real estate industry fell to around eight-month lows on Monday as repayment worries at two of the country’s biggest developers plunged confidence in the sector deeper into crisis.
Cash crunches at giants Country Garden and Dalian Wanda show funding trouble has reached what many hoped were the largest and safest players in a business that once contributed a quarter of China’s gross domestic product and is now all but frozen.
Doubts are growing that official support of any size is on the way, and investors do not expect any aid to be aimed at shareholders.
Country Garden shares fell 6 percent to an eight-month low and shares in its services arm fell 16%. Country Garden dollar bonds fell to less than a fifth of their face value.
Shares at rival Longfor dropped 10 percent, while an asset sale at Wanda failed to revive bond prices as investors waited on whether the cash actually reaches bondholders’ pockets.
“As market sales continue to weaken and policy expectations continue to fall short, it will be difficult for real estate developers to repay bonds by their own operations,” said Yao Yu, founder of credit analysis firm Ratingdog.
“Investors must become more and more pessimistic.”
Property development has ground to a halt in China as a government crackdown on debts and crumbling public confidence have left builders unable to sell apartments or refinance their dues.
Guidelines promoting urban redevelopment published late on Friday were seen as small scale, leaving investors hoping for more from a Politburo meeting expected this week. That big names were struggling, however, highlighted the depth of the problems.
An index of mainland developers fell 5.5 percent on Monday and was on course for its worst session of 2022.
“Everything is falling,” said a Hong Kong debt fund manager, who spoke on condition of anonymity.
“The major thing that we see now is onshore-traded Country Garden bonds going down,” he said. “That is the largest one. People get scared if that one cannot survive.”
New jitters
Country Garden is a giant with thousands of projects in nearly 300 Chinese cities. Its move to refinance a 2019 loan facility surprised and unnerved investors, and comes on the heels of ratings downgrades and new defaults elsewhere.
Country Garden’s onshore-traded bonds slumped to less than half of their face value on Monday and dollar bonds due in 2025 and 2031 fell below 20 cents on the dollar.
Wanda, China’s largest commercial developer, was also scrambling for cash for one of its subsidiaries to make an already-late coupon payment due before the end of a grace period on July 30. It sold part of another subsidiary to streaming firm China Ruyi for $320 million, which a source familiar with the matter said would help it repay a separate $400 million bond.
State-backed developer Greenland Holdings has missed repayments this month, while Sino-Ocean Group proposed extended terms for a 2 billion yuan ($278 million) bond due on Aug. 2.
The fresh troubles have squashed a nascent rally when China lifted COVID-19 controls and opened its borders after years of movement restrictions.
Restructuring plans at Evergrande, which was the poster-child of the sector’s 2021 plunge into funding stress, remain before courts in Hong Kong and the Cayman Islands, while property sales are in the midst of a new slowdown.
“Distressed Chinese property developers’ bond restructurings can buy them some room,” Fitch Ratings said in a report on Monday. “But most will continue to face repayment difficulties if home sales do not recover for a sustained period.”
($1 = 7.1972 Chinese yuan renminbi)