Evergrande Crisis Highlights Funding Risks for Developers

(Bloomberg) -- China Evergrande Group’s liquidity crisis is putting the spotlight on the health of the nation’s property sector, particularly junk-rated firms.

Such companies are facing increasingly tough conditions. Borrowing costs have surged amid fears of an Evergrande failure, with the yield on an index of dollar-denominated junk bonds climbing to about 15%, the highest in about a decade. Strict rules on leverage mean companies need to reduce debt, while measures to cool the housing market are damping sales. 

There’s little indication the central government will ease pressure on indebted firms just yet. President Xi Jinping has made tackling financial risks in the housing market a priority this year, while there’s been no official word from Beijing about the ultimate fate of Evergrande. That means the property sector will continue to be a focus of investor worry as contagion spreads.

Below are the 10 property companies with some of the weakest returns this year in a Bloomberg Index of Chinese high-yield dollar bonds, through Monday. The list excludes firms that have already defaulted, as well as Evergrande. None of the companies had an immediate reply to Bloomberg’s emailed request for comments on Tuesday with the exception of China Aoyuan Group Ltd.: 

Fantasia Holdings Group Co.

• What’s the company: The Shenzhen-headquartered firm was founded in 1998 and operates across China, including Guangdong province and Shanghai
• What’s the latest news: Moody’s Investors Service cut Fantasia’s rating deeper into junk territory on Monday. The private-banking units of Citigroup Inc. and Credit Suisse Group AG stopped accepting Fantasia bonds as collateral, according to a Bloomberg report. Share trading in the company was halted Wednesday pending an announcement on a “substantial” disposal.
• What are its dollar bonds doing: Its 10.875%, 2024 bond fell to 31 cents on the dollar this week from 98 cents when issued in March. Its 6.95% dollar bond due December jumped as much as 14 cents to 80 cents on Wednesday following the filing, before paring gains
• What’s the repayment schedule: Fantasia has $3.9 billion of dollar bonds outstanding, with a $208 million note due Oct. 4 and another $250 million bond due Dec. 17
• Share performance year-to-date: -58% in Hong Kong
• What’s it rated: B3/B/B (Moody’s/Fitch/S&P)
• Financials: Cash and cash equivalents were $4.2 billion, versus $12.9 billion of liabilities as of June 30, according to its interim report

Central China Real Estate Ltd.

• What’s the company: The Zhengzhou, Henan-based group was established in 1992 and is the largest developer in the province, according to S&P Global Ratings
• What’s the latest news: Both Moody’s and S&P Global lowered their outlooks to negative this month, while affirming their ratings. The firm said it has set aside sufficient cash to repay a bond due November, while the company has been buying back its bonds
• What are its dollar bonds doing: Its 7.65% note due 2023 fell to 65 cents this week from 95 cents in July
• What’s the repayment schedule: The company has $2.9 billion of dollar bonds outstanding, with a $400 million bond due Nov. 8
• Share performance year-to-date: -37% in Hong Kong
• What’s it rated: Ba3/BB-/B+ (Moody’s/Fitch/S&P)
• Financials: $1.7 billion of cash and cash equivalents, compared with $23 billion of liabilities as of June 30, according to its interim report

China South City Holdings Ltd.

• What’s the company: Founded in 2002, Hong Kong-based China South City has projects in cities including Shenzhen and Nanchang
• What’s the latest news: S&P Global revised its outlook to negative this month, saying the firm “may run down its cash buffers to meet large offshore maturities” while it “may not be able to refinance at reasonable costs.” Moody’s withdrew its B3 rating for its own business reasons
• What are its dollar bonds doing: Its 11.95% 2023 bond fell to 61 cents this week from 93 cents when issued in March
• What’s the repayment schedule: Outstanding dollar bonds total $1.6 billion, with a $348 million dollar note due February
• Share performance year-to-date: -43% in Hong Kong
• What’s it rated: B/B (Fitch/S&P)
• Financials: Cash and cash equivalents totaled $442 million as of March 31, compared with $10 billion of total liabilities, according to its interim report

Yuzhou Group Holdings Co.

• What’s the company: Founded in 1994, Shanghai and Shenzhen-based Yuzhou had over 179 projects under development in 39 cities as of June 30
• What’s the latest news: Yuzhou sold a $200 million 2023 green note at 9.95% last month, as well as a $120 million 2022 green note at 8.5% in September Fitch Ratings affirmed its rating with a stable outlook
• What are its dollar bonds doing: A 7.85% note due 2026 has fallen to 69 cents on the dollar from 105 cents in March
• What’s the repayment schedule: Yuzhou has $5.6 billion of dollar bonds outstanding. The next maturity is a $242 million note due in January
• Share performance year-to-date: -61% in Hong Kong
• What’s it rated: B1/B+ (Moody’s/Fitch)
• Financials: Cash and cash equivalents of $3.2 billion as of June 30, compared with liabilities of $21.5 billion, according to its interim report

Zhongliang Holdings Group Co.

• What’s the company: Shanghai-based Zhongliang operates in 155 cities in 25 provinces and municipalities, according to its semi-annual report
• What’s the latest news: Zhongliang has been buying back its outstanding dollar notes despite volatility in its bond prices
• What are its dollar bonds doing: Its 9.5% 2022 bond dropped to 74 cents in July from around par in May, before bouncing back to 85 cents this week
• What’s the repayment schedule: $1.2 billion of dollar bonds outstanding, including a $200 million bond due Nov. 22
• Share performance year-to-date: -25% in Hong Kong
• What’s it rated: B1/B+/B+ (Moody’s/Fitch/S&P)
• Financials: Zhongliang had cash and cash equivalents of $4.4 billion as of June 30, compared with $40 billion liabilities, according to its interim report

Xinyuan Real Estate Co. 

• What’s the company: Founded in 1997 in Henan province, Beijing-based Xinyuan now has more than 100 projects in more than 20 cities in China, as well as overseas, according to its website
• What’s the latest news: Fitch slashed the company’s rating by one notch to CCC earlier this month, citing “heightened refinancing risk” on the firm’s upcoming maturity in October. S&P also recently downgraded Xinyuan to CCC with a negative outlook, before withdrawing the rating at the company’s request
• What are its dollar bonds doing: Its 14% 2024 bond fell to 44 cents last week from around par earlier this year
• What’s the repayment schedule: The firm has $760 million of bonds outstanding, with a $229 million note due Oct. 15
• Share performance year-to-date: -23% in New York
• What’s it rated: CCC/WR (Fitch/S&P)
• Financials: Cash and restricted cash was $1.1 billion as of Sept. 30, 2020, versus $6.5 billion liabilities, according to its earnings report

Ronshine China Holdings Ltd.

• What’s the company: Shanghai-based Ronshine was established in 2003 and is focused on the Yangtze River Delta area. The company had a total of 282 projects as of June 30
• What’s the latest news: Moody’s, Fitch and S&P Global all downgraded the firm this month. Concern centered around the company’s profitability given the “high” cost of its land acquisitions in recent years and local government curbs limiting the price of sales
• What are its dollar bonds doing: Ronshine’s 8.1% note due 2023 fell to 74 cents this week from 98 cents in July
• What’s the repayment schedule: $3.2 billion of bonds outstanding, with a $150 million dollar note due Dec. 3
• Share performance year-to-date: -34% in Hong Kong
• What’s it rated: B2/B+/B (Moody’s/Fitch/S&P)
• Financials: Cash and cash equivalents of $3.3 billion and liabilities of $30 billion as of June 30

Yango Group Co. 

• What’s the company: Shanghai-based Yango has nearly 300 projects in over 100 cities across China, with its main projects located in Fujian province, the Yangtze River Delta and the Pearl River Delta, according to company statements and its website
• What’s the latest news: Yango sent a notice to investors earlier this month to deny “rumors in the market that our trust and commercial bills are overdue,” saying that “existing trust loans and other debts are paid normally”. The firm has been repurchasing bonds in both onshore and offshore markets. Fitch affirmed its rating on the company with a stable outlook
• What are its dollar bonds doing: A 7.5% bond due 2025 plunged to 68 cents this week from about 103 cents at beginning of the year
• What’s the repayment schedule: Outstanding bonds total $2.3 billion, with a $200 million bond maturing in January
• Share performance year-to-date: -34% in Shenzhen
• What’s it rated: B1/B+ (Moody’s/Fitch)
• Financials: Cash and cash equivalents totaled $5.2 billion as of June 30, versus $815 million short-term debt, $7.8 billion long-term debt and $13 billion contract liabilities

Guangzhou R&F Properties Co.

• What’s the company: Founded in 1994, the Guangzhou-based firm’s businesses include property development, management and hotel services. It has developed more than 450 projects in over 140 cities and regions globally, according to its website. The company also owns 91 deluxe hotels managed by third parties, according to its 2020 report
• What’s the latest news: The firm on Sept. 20 announced a deal to receive $1 billion in short-term financing from top executives, giving it enough liquidity to meet near-term obligations. That came after a Moody’s downgrade earlier in the month on refinancing risks
• What are its dollar bonds doing: A 2023 bond dropped to as low as 53 cents this month from 99 cents in July, before recovering to 73 cents following news of the liquidity injection
• What’s the repayment schedule: Outstanding dollar bonds total $5.1 billion, according to Bloomberg-compiled data, with a $725 million bond due in January
• Share performance year-to-date: -48% in Hong Kong
• What’s it rated: B2/B+/B (Moody’s/Fitch/S&P)
• Financials: Cash and cash equivalents were $2 billion as of June 30, while liabilities were $51 billion, according to its interim report

China Aoyuan Group Ltd.

• What’s the company: Founded in 1996, Aoyuan is based in Guangdong with a focus on the Greater Bay Area
• What’s the latest news: The company said this week two firms, one controlled by its chairman, would invest a combined HK$1 billion ($128 million) for a 9.3% equity stake in the builder. The news lifted Aoyuan’s shares and bonds
• What are its dollar bonds doing: Its 5.98% note due 2025 dropped to as low as 72 cents this week from 96 cents in June. It last traded at 75 cents
• What’s the repayment schedule: Firm has $3.2 billion of dollar bonds outstanding, with the next maturity of $188 million due in January
• Share performance year-to-date: -48% in Hong Kong
• What’s it rated: B1/BB/B+ (Moody’s/Fitch/S&P)
• Financials: Bank balances and cash of $9.4 billion, while liabilities were $40.7 billion as of June 30, according to its interim report
• What does the company say: It’s “committed to sound financial management to ensure fund safety and maintain good liquidity”

(An earlier version of this story was corrected to make clear some bonds of Fantasia, Central China and Guangzhou R&F were maturing rather than callable.)

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