China Bond Exodus Quickens; Developers Jump: Evergrande Update

(Bloomberg) -- Global funds slashed their holdings of Chinese bonds by the most on record last month amid the nation’s dwindling yield advantage over the U.S. and geopolitical uncertainties posed by the war in Ukraine.

Meanwhile, Chinese real estate stocks rallied anew Friday, with a Bloomberg gauge jumping as much as 4.6% amid JPMorgan Chase & Co.’s upbeat assessment of the sector’s equity outlook. 

The country’s high-yield dollar bonds remained on pace to rise for a third week, according to a Bloomberg index. Pacific Investment Management Co. is maintaining a slight overweight position in bonds from healthier Chinese developers, with a portfolio manager saying market pricing of the sector has been “too pessimistic.” 

Key Developments:

• Honghua Cut to ‘B-’ by Fitch; Rating Watch Negative Maintained
• Aoyuan Aims to Soon Have Offshore-Debt Restructuring Plan: REDD
• Guangzhou R&F Sets Early Redemption Schedule for 400m Yuan Bond
• Global Funds Cut China Bond Holdings by Record as Premiums Erode
• China Developer Shares Rise as JPM Expects 20% Upside, Upgrades
• Pricing on Some China Property Bonds Is ‘Too Pessimistic’: Pimco

Honghua Cut to ‘B-’ by Fitch; Rating Watch Negative Maintained (4:21 p.m. HK)

Chinese oilfield equipment and service provider Honghua Group Ltd.’s long-term foreign-currency issuer default rating was cut to ‘B-’ from ‘B’ by Fitch Ratings, according to a statement.

Fitch also downgraded the company’s senior unsecured rating and U.S. dollar-denominated bond rating to ‘B-’ from ‘B’. The risk assessor cited heightened liquidity risk and business performance deterioration as reasons for its decision. 

Aoyuan Aims to Soon Have Offshore-Debt Restructuring Plan: REDD (4:15 p.m. HK)

China Aoyuan Group Ltd. told investors this week it aims to finalize a preliminary plan by the end of April or early May to restructure $6.4 billion of offshore debt, REDD reported citing three sources briefed by the developer.

The developer is also in talks with Shandong Energy Group to acquire a stake in Aoyuan, but the state-run firm is more likely to be selected as its “white knight”, according to the report.

Guangzhou R&F Sets Early Redemption Schedule for 400m Yuan Bond (4:10 p.m. HK)

Guangzhou R&F Properties Co. said holders of its 6.48% yuan bond due 2024 can apply for early redemption between April 13 and 15, according to a statement to Shanghai stock exchange.

Funds for requested redemption will be paid on May 9, it said. The property developer is seeking to address short-term liquidity pressure with measures including speeding up sales and asset disposal, according to the filing.

Global Funds Cut China Bond Holdings by Record as Premiums Erode (1:05 p.m. HK)

Overseas investors offloaded a record 50 billion yuan ($7.9 billion) of Chinese sovereign debt in March, reducing their holdings to 2.43 trillion yuan, according to Bloomberg calculations based on data from the People’s Bank of China.

Foreign funds had unwound bets on China’s sovereign bonds in February at a record pace, according to data compiled from the PBOC and Chinabond. The yield spread between benchmark Chinese bonds and Treasuries has almost vanished, prompting global funds including Pimco and AllianceBernstein Holding LP to cool on the nation’s debt.

China Developer Shares Rise as JPM Expects 20% Upside, Upgrades (12:10 p.m. HK)

The gains came after JPMorgan said most negatives for the sector have “materialized” and 15%-20% upside is possible from an Oct. 2021 peak.

The investment bank expects a directional recovery in share prices this quarter despite likely high volatility, thanks to improving sales and more demand-side policy easing, analysts including Karl Chan wrote in a note. 

Pricing on Some China Property Bonds Is ‘Too Pessimistic’: Pimco (9:55 a.m. HK)

“We think there are a number of survivors in that sector,” Stephen Chang, Pimco’s Asia portfolio manager at the firm, said in a Bloomberg TV interview. 

Policy makers are trying to foster healthier sector development with more supportive policies but markets view this as a slow and piecemeal process, he added.

Developer Dexin China Repurchased $2.74m of 2022 Notes (7:52 a.m. HK)

Dexin China Holdings Co. has bought back an additional $2.74 million of principal in a bond maturing April 23, according to a filing with the Hong Kong stock exchange.

Repurchases have totaled $16 million, or 8% of the principal. 

China Developer Rally Runs Up Against Impatience for Policy Plan (7:51 a.m. HK)

The Chinese government’s pledge of support for embattled developers ignited a frenzied rush for stocks and bonds.

But three weeks later, the frantic rally is testing the limits of investors’ patience as Beijing has yet to spell out details of how the government would relax curbs to prevent a disorderly collapse in the property market.

The market is pulling back from a spell of exuberance for an industry that’s been crippled by crackdowns and mountains of debt that crushed large developers including China Evergrande Group and Shimao Group Holdings Ltd. It’s a sobering reality check as China braces for the fallout from its worst coronavirus outbreak, which has locked down major economic hubs from Shenzhen to Shanghai.

Sunac Extends Redemption Deadline for 4.78% Yuan Bond (7:45 a.m. HK)

Sunac Real Estate Group Co. said it plans to allow holders of its 4 billion yuan bond to still cancel their early redemption requests even if they have missed the prior deadline, according to a filing to the Shanghai Stock Exchange.

The company has earlier allowed bondholders to cancel requests made March 11-28. Bondholders who have missed that deadline can now do so from April 11-22.

Times China Downgraded to B2 by Moody’s (7:37 a.m. HK)

Times China Holdings Ltd.’s long-term corporate family rating was downgraded by Moody’s to B2 from B1, citing expectations that the developer’s liquidity will weaken because of declining operating cash flow. 

It separately lowered Redsun Properties by a notch to B3, reflecting “heightened refinancing risks and weakened liquidity driven by its weak operating cash flow and sizable debt maturities over the next 12-18 months.” 

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