Hong Kong Property Developer Set to Default on Dollar Bonds

(Bloomberg) -- Hsin Chong Group Holdings Ltd. is set to become the second Asian company to default on its U.S. dollar bonds this year, the latest sign of rising borrowing costs impacting weaker firms’ ability to repay debt.

The Hong Kong-listed builder anticipates it won’t pay the $300 million 2018 securities due today and has engaged with noteholders and their advisers to find a consensual solution, according to an exchange filing late Thursday. It has also engaged holders its bonds due 2019 as the nonpayment on 2018 notes will constitute an event of default. Commodity trader Noble Group Ltd. was the first Asian company to default on dollar bonds this year, according to data compiled by Bloomberg.

The imminent failure to repay debt shows refinancing avenues are narrowing for weaker companies amid a jump in funding costs. The cost of borrowing for Asia’s junk-rated issuers climbed about 1.5 percentage points since October to a near a two-year high of 7.58 percent, according to ICE BofaML index.

“The whole refinancing environment is tough for weak borrowers in general, whether they are from China or Hong Kong,” said Christopher Lee, managing director of corporate ratings at S&P in Hong Kong. “The onshore and offshore markets have turned cautious on small and weak firms as liquidity tightens, funding cost increase against large maturities coming due in the next 6 to 18 months. ”

Cross Defaults

Hsin Chong had HK$1.8 billion ($229 million) of loans from Hong Kong institutions and 8.1 billion yuan ($1.3 billion) from Chinese lenders on April 30, according to the filing. The company is in discussions with its lenders to manage its overdue debt and failure to repay the dollar bonds will trigger events of default on loan agreements, it added.

The company’s 2018 notes were indicated at 51.2 cents on the dollar as of 4:05 p.m. Hong Kong time, up 1.4 cents, according to Bloomberg-compiled prices. They have traded at about that level for most of this year, having crashed by about 33 cents in 2017. Its shares have been suspended from trading for over a year.

"We have been skeptical about the company’s operations," Chuanyi Zhou, a credit analyst in Singapore at Lucror Analytics, citing concerns highlighted by former auditors about past related-party transactions.

Hsin Chong earlier hired Moelis & Co. as a financial adviser and Kirkland & Ellis as its legal adviser in April to assess its capital structure. The group said it’s not aware of any insolvency proceedings against it.

Chinese developer Poly Property Group Co. has expressed an interest in investing 10 to 30 percent equity stake in the group, according to a May 2 filing. Poly continues to perform due diligence on the potential investment, Hsin Chong said in yesterday’s filing.

©2018 Bloomberg L.P.