Builders Rise on Easing Reports; Zhenro Sinks: Evergrande Update

(Bloomberg) -- Chinese developers’ bonds and stocks rallied following reports on new regulations that would make it easier to tap cash from home presales, potentially easing a liquidity crunch. Zhenro Properties Group Ltd. plunged on bond-redemption worries.

The new regulation would replace legions of local rules across the country and allow builders to withdraw and use such proceeds after setting aside the amount required for project building, according to the reports. A Bloomberg Intelligence gauge of developer shares surged as much as 3.5%, while Chinese high-yield dollar bonds saw morning gains pared to 1 to 3 cents on the dollar, credit traders said. 

Zhenro’s shares and notes plunged Friday, with traders citing concern that the builder won’t redeem a $200 million bond next month as planned. Liquidity challenges remain for the nation’s builders, with bond and trust fundraising plunging 70% in January from a year earlier, according to data analysis provider China Index Holdings. 

Key Developments:

• China Developer Zhenro Plunges 66% on Bond Redemption Concern
• Record Loans Mask Bleak Economic Outlook: What to Watch in China
• China Developers Jump After Reports on Presale Fund Use
• China Dollar-Bond Demand Muted as Supply of Fresh Deals Dries Up
• Debt Fears Swirl Around Logan as China Property Woes Deepen
• China Bad-Debt Managers Move to Support Stressed Developers
• China Credit Investors Brace for More Surprises From Hidden Debt

China High-Yield Dollar Bonds Pare Gains Amid Zhenro’s Plunge (5:05 p.m. HK)

Notes were 1-3 cents higher Friday afternoon, according to credit traders, as a rout in Zhenro’s dollar bonds helped cool morning gains of as much as 5 cents. The broader market was boosted by local media reports that the government issued a nationwide regulation to standardize cash use from presold properties.

China Developer Zhenro Plunges 66% on Bond Redemption Concern (4:30 p.m. HK)

The 10.25% perpetual note in question slumped to 35 cents on the dollar from 93 cents Thursday, according to data compiled by Bloomberg. Zhenro shares ended down a record 66% in Hong Kong. 

The Shanghai-based developer -- China’s 30th largest builder by contracted sales last year according to China Real Estate Information Corp. --  said last month it would redeem the note on March 5. One bondholder of the firm’s other notes spoke to a company official on Friday and was told Zhenro plans to redeem the perpetual bond, the investor said, asking not to be named citing private information about their holdings.

Developers’ Bond, Trust Fundraising Down 70% in January: CIH (12:15 p.m. HK)

The data from China Index Holdings underscore continuing funding challenges faced by developers amid a spreading liquidity crisis. 

Capital raised through selling onshore and offshore notes, trust and asset-backed securities totaled 79 billion yuan ($12.4 billion) last month, according to CIH, as fragile sentiment extended into the new year. The financing slowdown was mainly driven by muted offshore bond issuance and lackluster trust product sales.

China City Mulls Measures to Encourage Home Purchase: Report (9:04 a.m. HK)

A district in the southern Chinese city of Huizhou plans to encourage home purchases with measures including subsidies, sales discounts and convenience for school admission, Securities Times reports, citing a government document circulating online.

Record Loans Mask Bleak Economic Outlook (8:57 a.m. HK)

China’s blowout lending figures suggest the central bank’s pivot toward easier policy is making its way into the real economy. But a deeper look suggests the picture is far less optimistic. 

Much of the growth in credit came from state and corporate bond issuance, with lending mainly benefiting the government. Local authorities are borrowing to shore up infrastructure projects, while state-owned enterprises need the credit to fund acquisitions in the property sector, according to Craig Botham, chief China economist at Pantheon Macroeconomics.

China Issues Property Presale Rule to Ease Cash Crunch: Reports (8:30 a.m.)

China has issued a nationwide regulation to standardize the use of cash from presold properties, a move likely to ease liquidity pressures for some developers, according to local media reports.

The move is the latest effort by authorities to arrest a worsening slowdown in the property sector, which is hurting growth in the world’s second-largest economy. Bloomberg reported last month that regulators are considering lifting some restrictions on developers’ access to cash from presold properties tied up in escrow accounts.

Debt Fears Swirl Around Logan as China Property Woes Deepen (6:00 a.m. HK)

Concerns over the financial health of Logan Group Co. have shaken investor confidence in what was seen as one of China’s stronger developers, deepening the turmoil faced by the crisis-hit industry.  

Fitch Ratings downgraded the firm this week, citing a “recent disclosure of a private debt arrangement that is off its balance sheet.” Questions about the possible scale of Logan’s undisclosed debt had swirled in the weeks prior, pushing its dollar bonds to record declines and sending its shares to the lowest since 2017.

China Dollar-Bond Demand Muted as Supply of Fresh Deals Dries Up (5:00 a.m. HK)

Chinese dollar-bond sales have had their weakest start to the year since 2019 as the credit crisis in the nation’s property sector rolls on. Stress levels in the offshore market remained at their highest level last month, with returns on dollar notes the worst since March 2020, according to Bloomberg’s China Credit Tracker. 

Orders for Chinese offerings were 3.6 times their issuance size in January, below the average ratio for the previous 12 months, according to Bloomberg-compiled data of available deal statistics. 

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