Billionaire Who Invested in Evergrande Faces Bond Exodus

(Bloomberg) -- Less than two months after billionaire Zhang Jindong helped China Evergrande Group avoid a cash crunch, the founder of Suning Appliance Group Co. is getting his own reality check from the bond market.

Prices for several local bonds issued by Zhang’s companies have plunged to record lows after he decided not to demand repayment of a 20 billion yuan ($3 billion) strategic investment in Evergrande. The tycoon was among a group of investors who agreed in late September to keep their money in the developer after fears of a liquidity squeeze sent its bonds tumbling.

Zhang’s decision came as a surprise to some investors because Suning’s management had said earlier that month it planned to demand the return of its money to repay debt if Evergrande failed to succeed in a domestic stock listing by January. Suning and its flagship e-commerce platform face the equivalent of $4.3 billion in local and dollar bond maturities by the end of 2021, including Suning’s largest monthly repayment on record in December.

“How will Suning repay its debt given that it will not take back its investment in Evergrande? This is the question investors have been asking,” said Deng Hao, chief executive of Beijing GEC Asset Management.

Some of Suning’s private bonds were quoted at prices as low as 70 yuan in the past month, according to traders. Local yuan bonds issued by Suning.com Co., the e-commerce platform, have fallen by as much as 13% since late September to record lows. Among them, a 4.9% yuan note due 2023 fell 1% to 78 yuan as of 10:10 am in Hong Kong, implying a yield of around 34%, according to prices compiled by Bloomberg.

Suning didn’t immediately reply to questions from Bloomberg News. A Suning.com spokeswoman said the company “will prepare funding” ahead of debt maturities, adding that its “information disclosure is transparent, it has sound corporate governance and its fundamentals are improving.”

Bondholders had been counting on Suning to recoup its investment in Evergrande, according to Shen Chen, a partner at Shanghai Maoliang Investment Management LLP. “Now you would need to be very bold to lend money to the company,” Shen said.

Suning’s debt-to-asset ratio stood at 73.81% at the end of June, little changed from 73.76% at the end of last year, according to an interim financial report shared with investors and seen by Bloomberg News. Its interest coverage ratio, a measure of debt-servicing capacity, dropped to 0.76 from 1.61 a year earlier.

The company hasn’t sold any dollar bonds since March 2019. In June, it borrowed $100 million from an offshore unit of Shandong Hi-Speed Group with annual interest of 7.5%, according to a filing to the Hong Kong Stock Exchange. The latter, a state-owned conglomerate, is another strategic investor in Evergrande.

Suning Appliance last tapped the onshore bond market in June, raising 1 billion yuan via a private offering. Suning.com’s last bond sale was a 500 million yuan note in March.

An unreceptive bond market may force Suning to seek funding from a strategic investor, according to Shanghai Maoliang’s Shen. “It is hard to pull off new bond sales when secondary bond prices fall to near 70 yuan,” he said.

©2020 Bloomberg L.P.

With assistance from Bloomberg