HONG KONG – China’s real estate horizon grows increasingly stormy as credit experts predict a surge in debt defaults for beleaguered developers facing sluggish home sales and challenging fundraising scenarios.
Recent figures released by CreditSights, a prominent research firm, showcase the daunting reality. Bonds valued at a staggering $124.5 billion have already defaulted within the China property dollar bond market, which is estimated to be worth $175 billion in its entirety. This massive default includes Country Garden’s entire dollar bond, once considered the country’s top private developer. This alarming default happened due to the cross-default clause.
In the coming half-year, which includes October, a substantial amount of Chinese property bonds—approximating $60.5 billion—are slated to mature. Notably, offshore bonds account for at least a third of this impending debt, as revealed by data from Dealogic.
Country Garden’s plight has grown urgent. Their international bondholders, alarmed by the mounting financial strain, are now pushing for immediate dialogues with the company.
The tremors of financial instability aren’t solely restricted to Country Garden. Evident strain can also be seen in other corporations. State-supported Sino-Ocean Group is scheduled to convene a bondholders’ meeting this Friday. In a recent disclosure to the Hong Kong Exchange, the company stated its intentions to push the grace period for repaying bond interests due this week to the upcoming Thursday. Their justification? Operational challenges.
Sino-Ocean Group remains committed to charting a feasible debt reimbursement strategy if they are unable to honor the bonds on the designated dates.
The atmosphere of uncertainty has also enveloped Gemdale, another significant player in the developer sector. The sudden resignation of its chairman earlier this week resulted in the company’s bonds plummeting, sparking speculations regarding its financial stability.
In related news, Dalian Wanda Group has initiated dialogues surrounding a proposal to circumvent the repayment of about 30 billion yuan (equivalent to $4.11 billion). This move is being considered if the company doesn’t execute its initial public offering (IPO) strategy by the end of this year, as indicated by Bloomberg News.
Ting Meng, a seasoned credit expert at ANZ Bank China, painted a grim picture for the real estate future. He stated, “For those property developers who haven’t defaulted on their obligations, the prospects appear dismal. We are yet to witness a resurgence in the sector, with sales figures persistently underwhelming.”
Data released recently underscores this narrative. New home prices in China plummeted for the third consecutive month in September. This slump undermines hopes of a revival in demand during what is generally considered a peak period for home purchases, even with the government’s aggressive efforts to resuscitate the ailing property domain.
Ricky Tsang from S&P Global Ratings weighed in on the multi-faceted challenges plaguing the property sector. He remarked, “In addition to the anemic revenue from home sales, the process of fund accumulation for developers, especially private entities, is exceedingly challenging.”
He further elaborated on the intricacies of the fundraising landscape. “The developers most desperate for financing are finding it an uphill battle to locate qualified assets. In many instances, these assets are commercial establishments like malls or office structures, which are vital for issuing guaranteed bonds,” Tsang explained.
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