Aoyuan Bond Drop Pulls Down China Junk Notes: Evergrande Update

(Bloomberg) -- China Aoyuan Group’s dollar bonds declined, dragging Chinese junk notes down with them, as a report saying the company failed to pay a trust loan in full revived concerns about stress among the country’s developers. 

China high-yield dollar notes dropped 1 to 2 cents, credit traders said, and Aoyuan’s 2022 and 2023 bonds both slumped, Bloomberg-compiled prices show. The property company missed payment on 66 million yuan ($10.3 million) of a 78 million yuan trust loan on Nov. 12, REDD reported, citing a source familiar with the matter and a notice seen by the research firm. 

Separately, shares in China Evergrande Group gained as much as 11% to the highest since Sept. 30, while those of China Evergrande New Energy Vehicle Group jumped as much as 26%, the most in seven weeks. 

Key Developments:

• Kaisa Offshore Bondholders Hire Advisers as Company Struggles
• T. Rowe Joins Goldman Sachs in Betting on China’s Property Debt
• China Property Moguls Use Billions of Their Own Cash on Rescues
• Evergrande Stake Worth $1 Billion Enters H.K. Clearing System
• Central China Real Estate Bonds Rise on Parent’s Funding Plan
• China’s Slowdown Tests Central Bank as Debate Rages Over Easing
• Evergrande to Be Axed From Hang Seng China Enterprises Index
• China Junk-Bond Bargain Hunters Trigger 388% Surge in ETF Assets

Evergrande Shares Jump in Late Afternoon as Group Units Rally (3:40 p.m. HK)

Evergrande shares climbed in the late afternoon along with those of its electric vehicle and property management units but traders struggled to pin down reasons for the gains.

There were multiple block trades after 2:40 p.m. Tuesday in Hong Kong, with a single trade of more than 1 million Evergrande shares crossing at HK$2.99 each.

“There are many block trades within a few minutes, so the market is wondering what’s going on,” said Jackson Wong, asset management director at Amber Hill Capital Ltd. “It’s really hard to tell, but the market is very excited.”

One Investor Makes a Quick $582 Million in Evergrande Fire Sale (1:30 p.m. HK) 

The buyer of Evergrande’s stake in HengTen Networks Group Ltd. is sitting on a paper profit of $582 million after the shares surged in the wake of the sale.

Li Shao Yu agreed on Nov. 17 to buy Evergrande’s 18% holding in the internet services firm for HK$2.13 billion ($273 million) at the discounted price of HK$1.28 a share. The stock has since rallied to as high as HK$4.19 earlier on Tuesday. 

Evergrande is scrambling to raise funds to meet bond payments and avoid default. Recent public efforts include the HengTen divestment, a share placement by the company’s electric-vehicle unit and the reported sale of two private jets. Hong Kong clearing data showed founder Hui Ka Yan may have pledged a stake worth $1 billion in Evergrande last week.

China Junk Bonds Drop After Report Aoyuan Defaults on Trust Loan (11:14 a.m. HK)

Aoyuan’s 2023 note fell 5 cents on the dollar to 27 cents, while its bond that matures in January declined 7.4 cents to 32.7, Bloomberg-compiled prices show. Moody’s Investors Service late Monday cut its rating to Caa2, citing concern over the size of the firm’s debt maturing next year.

The slump comes after investors turned more upbeat on Chinese developers amid speculation the government will take steps to ease a historic liquidity squeeze, with firms including T. Rowe Price Group and Allianz Global Investors seeking opportunities. The yield on the nation’s junk dollar bonds -- dominated by property firms -- has fallen to about 19% from this month’s high of 25%.

China’s High Yield Credit Market Likely Hit a Floor: Ninety One’s Wee (10:40 a.m. HK)

China’s high-yield bond market has likely seen a floor after the cost on the nation’s junk-rated dollar bonds pulled back from this month’s highs, Ninety One Singapore portfolio manager Wilfred Wee told Bloomberg TV. 

Builders “have a lot of work to do going into year-end to just be ready for the next set of maturities,” Wee said during the interview. “Developers do need to shape up or ship out,” he said, noting the sector has some $3 billion of notes coming due next month and $9 billion of onshore and offshore in the first quarter of 2022. 

There have been some “tremendous buying opportunities” during the recent selloff and “we have been committed to the Chinese real-estate sector,” he said.

China Aoyuan Defaults on 66 Million Yuan of Trust Loan, REDD Reports (9:33 a.m. HK)

The 78 million yuan trust loan was issued by Zhuhai Trade Zone Qiheng Logistics, an Aoyuan subsidiary, and guaranteed by Aoyuan Corp., the onshore arm of the developer, according to the notice to the trustee.

Aoyuan and its subsidiary only transferred 12 million yuan to the trustee and defaulted on the remaining amount, it said. The trustee, Sws Mu Fund Management, has sent a letter to Aoyuan and its units to urge payment and initiated legal process to recover the unpaid amount, according to the source. 

Aoyuan did not immediately respond to a Bloomberg request for comment and calls to its investor relations department went unanswered. 

Kaisa Pays Wealth Management Products Due in October, November (9:11 a.m. HK)

Kaisa Group says the company repaid wealth management products due in October and November 2021 on Monday, according to a Wechat statement late Monday. Payment was made under its installment plan outlined earlier.

The company paid the interest and principal of Jinheng wealth management products in order by maturity and installment. It plans to pay 10% of principal and interest in the month of maturity and to pay 10% of them every three months. 

China Aoyuan Hires Financial Adviser to Assess Capital Structure (8:45 a.m. HK)

China Aoyuan Group said it has hired Admiralty Harbour Capital as its financial adviser, and Linklaters as its legal adviser, to assess the company’s capital structure, financial condition and debt and liquidity profile.

The advisers were also asked to engage with the company’s creditors, according to an exchange filing.

Kaisa Offshore Bondholders Hire Advisers as Company Struggles (7:32 a.m. HK)

A set of Kaisa Group Holdings offshore investors has hired advisers, people with knowledge of the situation said. The ad hoc group of offshore bondholders is seeking advice from bankers at Moelis & Co and lawyers at Kirkland & Ellis, said the people, who asked not to be identified because the matter is private. Kaisa’s failure to make least some of the payments on dollar debt started the clock on a 30-day grace period that the company has until it’s in default. 

S&P Global Ratings said on Nov. 10 that for Kaisa, “a default scenario is inevitable within the next six months.” Many of the company’s bonds are trading at around 40 cents on the dollar, or less. Kaisa previously defaulted on bonds in 2015, and then restructured its borrowings. Among Chinese developers, it is the third largest dollar-debt borrower. 

T. Rowe Joins Goldman in Betting on China’s Property Debt (7:25 a.m. HK)

T. Rowe is joining Goldman Sachs Asset Management in loading up on bonds issued by beleaguered Chinese property firms. The $1.6 trillion investment manager has been boosting its stake in Chinese developers since the start of September, according to Steven Boothe, a portfolio manager for global and U.S. high-grade bonds. 

Goldman Sachs has said it’s making a similar bet by adding a “modest amount of risk” through high-yield bonds issued by China property developers. 

T. Rowe is focusing on debt with investment-grade and BB ratings and is looking to invest in companies that have cash and resources to navigate the period of stress. Samy Muaddi, portfolio manager of firm’s emerging markets debt strategy, called the position a “significant trade,” given that T. Rowe manages more than $28 billion in EM credit. It’s targeting a 15% return on its investment, he added.

A look at Evergrande’s maturity schedule:

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