Property Bonds Slump on Logan Debt Concerns: Evergrande Update

Crisis Impacts Major Developer Country Garden: Evergrande Update

Beth Thomas

18 Jan 2022, 10:26 AM IST

(Bloomberg) -- Concerns about concealed debt at Logan Group Co. fueled a heavy selloff in Chinese dollar bonds, both investment-grade and and high-yield. A key interest rate cut by China wasn’t enough to stem a drop in property stocks, with traders calling for more policy support as the economy slows.

Logan’s 2023 note sank 14.7 cents to a record low 62.3 cents after Debtwire reported the developer could be on the hook for $812 million of guarantees on outstanding obligations due through 2023. Concerns are weighing on a broader pool of China high-yield property issuers, which are headed for a 10th straight drop, according to a Bloomberg index. Country Garden Holdings Co.’s bond due 2024 tumbled 12.7 cents to 67.9 cents, extending last week’s decline.

Property Bonds Slump on Logan Debt Concerns: Evergrande Update

A Bloomberg Intelligence gauge of China real-estate companies was down as much as 1.8% on Monday, dropping a fourth session, weighed by Country Garden, which fell as much as 9.1%. China’s largest developer is coming under pressure amid investor fears that a reportedly failed fundraising effort may presage declining confidence.

Key Developments:

Times China Downgraded to B+ by S&P, Outlook Negative (6:59 p.m. HK)

In the latest ratings downgrade to hit China’s property sector, Times China’s long-term rating was cut by the ratings company S&P to B+ from BB-, putting it further into junk territory, with its outlook changed to negative from stable.

Sales of Country Garden Home Projects Halted in Qingdao (6:06 p.m. HK)

According to a statement from the local housing regulator published Thursday and reported Monday, the government of West Coast New Area in the east Chinese city of Qingdao halted sales of two home projects of Country Garden and a project of China Aoyuan because of violations in sales. The authority told the two developers to rectify problems before allowing them to resume sales.

Shimao’s Founder Hui Puts Hong Kong Office Floors Up for Sale (4:06 p.m. HK)

Shimao Group Holdings Ltd.’s Chairman Hui Wing Mau has put two office floors in Hong Kong up for sale, as the embattled Chinese developer contends with an industrywide cash crunch. The space in The Center tower in Central is being marketed to potential buyers for about HK$1.5 billion ($193 million), according to sales material seen by Bloomberg.

Chinese Developer Bond Rout Deepens on Hidden Debt Concerns (2:31 p.m. HK)

Fresh turmoil rocked Chinese property bonds on Monday as investors fretted over the true scale of the industry’s hidden debts after the Debtwire report. Logan, whose bonds traded at close to par as recently as last month, denied the report.

Mounting concerns about the transparency of China’s better developers is forcing bondholders to question the liquidity of firms whose finances appear sound. More debt would mean more creditors, some of whom could demand early repayment.

Chinese LGFVs See Bond Pledge Ratios Decline Amid Risk Concerns (12:18 p.m. HK)

The pledge ratio for onshore bonds of some Chinese local government financing vehicles fell in recent days, data from the exchange-traded repo market show. Tianjin Free Trade Zone Investment Holding Group Co. saw its pledge ratio decline the most in the five trading days through Jan. 14, according to data compiled by Bloomberg.

Chinese Developers’ Dollar Bonds Slump on Concerns About Logan (11:59 a.m. HK)

Concerns about hidden debt at Logan is adding to declines across credit quality. High-yield notes fell as much as 3 cents on the dollar, traders said. Road King’s dollar bond due 2025 declined as much as 7.6 cents, according to data compiled by Bloomberg, and Powerlong’s 6.95% note due 2023 fell as much as 6.3 cents.

China’s Economic Growth Slowed, Prompting Interest Rate Cut (10 a.m. HK)

China’s economic growth weakened last quarter in the face of slow private spending, a property market crisis and virus outbreaks.

GDP grew 4% in the final quarter of 2021 from a year earlier, the National Bureau of Statistics said Monday, higher than the 3.3% rise projected by economists but slower than in previous three months. For the full year, the world’s second-biggest economy expanded 8.1%, well above the government’s target of “over 6%.”

China Cuts Policy Interest Rate For First Time Since April 2020 (9:27 a.m. HK)

China lowered a key interest rate for the first time since the peak of the pandemic in 2020 as a property-market slump and repeated virus outbreaks dampened the nation’s growth outlook.

The People’s Bank of China cut the rate on its one-year policy loans by 10 basis points to 2.85%. That’s the first reduction since April 2020. It also slashed the rate on the seven-day reverse repurchase agreements by the same magnitude to 2.1%.

Goldman Favors Macau Gaming in Asia HY, Advises Diversification (9:25 a.m. HK)

Goldman Sachs prefers Macau gaming and “non-China property B rated corporates” in Asia high-yield credit, recommending that investors stay cautious and diversified among better quality developers.

Increasing stress levels in China’s high yield property sector suggest policy easing measures have so far been “insufficient to stabilize credit flow to developers,” analysts Kenneth Ho and Chakki Ting wrote in a report dated Friday.

Goldman Already Raised 2022 Junk Default Estimate: China Today (7:42 a.m. HK)

For Chinese developers, a turn of the calendar page hasn’t turned around their fortunes. Their dollar bonds have declined to new lows. It’s only mid-January, and Goldman Sachs has already raised its default forecasts for the year.

Strategists Kenneth Ho and Chakki Ting say stresses are piling up after the pick-up in proposals for bond exchanges or maturity extensions. They now expect a 19% default rate for high-yield developers, up from a previous estimate of 11.5%.

China Home Market Slump Deepens as Prices Fall for Fourth Month (7 a.m. HK)

New home prices in 70 cities, excluding state-subsidized housing, slid 0.28% last month from November, when they dropped 0.33%, National Bureau of Statistics figures showed Saturday. Falling prices may dissuade homebuyers concerned about the value of their assets, making it harder for developers to sell properties and generate much needed cash.