Chinese property bonds dive as contagion kicks in

By Marc Jones

SHANGHAI/BEIJING/LONDON (Reuters) – China’s property sector suffered a fresh pounding on Tuesday as Kaisa Group made a desperate plea for help, Beijing-backed firms began to wobble and the U.S. Federal Reserve sent its first direct warning about potential global damage.

Bonds issued by developers slumped after sources said Kaisa, which was the first Chinese property firm to default back in 2015, told a meeting on Monday with a government think-tank and some of its peers and the country’s banks and that it needed help to pay loans, workers and suppliers.

Much larger companies were tumbling too. Country Garden, China’s biggest developer by sales, and China Vanke, which is seen as one of the sector’s most solid firms due to partial state ownership, saw their biggest bond price falls on record.

Investment grade bonds issued by Shimao, meanwhile, fell below some of their junk-rated rivals.

“Investment grade firms and the state-owned names are now feeling the heat,” said Seaport credit analyst Himanshu Porwal.

“It is more about the fear factor playing out and people trying to exit as soon as they can and going into ‘sell first, think later’ mode.”

The slides in bond prices came just hours after the U.S. Federal Reserve warned that China’s troubled property sector could pose global risks https://reut.rs/3C4DMTn.

“Financial stresses in China could strain global financial markets through a deterioration of risk sentiment, (and) pose risks to global economic growth,” the Fed said in its twice-yearly financial stability report.

Underscoring the liquidity crunch, Fitch downgraded Kaisa closer to default on Tuesday, citing its deteriorating finances, struggle to sell assets and undisclosed debt in its wealth management unit.

“We sincerely ask investors to give Kaisa Group more time and patience,” the company said in a plea on its official WeChat account late on Monday.

CRY FOR HELP

Kaisa is China’s 25th largest developer by sales but only China Evergrande Group, the poster child for the current crisis, has a bigger bond repayment bill next year.

Kaisa attended a meeting on Monday with the Development Research Center of the State Council, other developers and banks in the southern Chinese city of Shenzhen, a well-placed source told Reuters.

The think-tank makes policy proposals on China’s national development and its economy but is not a decision-making body.

At the meeting, Shenzhen-based Kaisa urged state companies to help struggling privately run peers by buying some of their projects and making other strategic purchases, the source said.

Participants at the meeting included China Vanke, Ping An Bank, China Citic Bank, China Construction Bank, CR Trust, Southern Asset Management and developer Excellence Group, according to the source.

Kaisa said it was facing significant difficulties and some financial institutions had transferred funds from its accounts. It also called for lawsuits seeking to freeze its assets to be handled centrally in a Shenzhen court, the source said.

Kaisa, Vanke and Citic Bank declined to comment. Neither Excellence, other banks that participated in the meeting nor the State Council Information Office immediately responded to requests for comment.

(Graphic: China property woes worsen: https://fingfx.thomsonreuters.com/gfx/mkt/zgvomkkljvd/Pasted%20image%201636466014891.png)

SYSTEMIC?

China’s property woes rattled global markets in September and October. There was a brief lull in mid-October after Beijing tried to reassure markets the crisis would not be allowed to spiral out of control but concerns have resurfaced https://reut.rs/3qmXXK4.

“The problem is, it is getting systemic,” said Viktor Szabo, a London-based emerging market portfolio manager at abrdn, saying many Chinese property developers could no longer access borrowing markets and get financing.

“The big issue is that we don’t know what (Beijing’s) ultimate plan is … and how long can you hold on to the view that China can handle it?”

Trading in shares of Kaisa and three of its units was suspended last week, a day after an affiliate missed a payment to onshore investors.

Evergrande, the world’s most indebted developer, has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.

Another overdue $148 million bond payment must be made on Wednesday and it has coupon payments totalling more than $255 million on its June 2023 and 2025 bonds on Dec. 28.

Beijing has been prodding government-owned firms and state-backed property developers to purchase some of Evergrande’s assets to try to control the fall.

Its shares ended higher on Tuesday after it sold a $52 million stake in HengTen Networks Group, taking its fundraising from selling down its holding in the Chinese internet services provider to $144 million since Nov. 4.

Separately, shares of small developer China Aoyuan jumped more than 6% after Infini Capital told Reuters on Tuesday it had been accumulating stakes in the firm’s property management unit Aoyuan Healthy Life Group and was now its second-largest shareholder.

($1 = 7.7840 Hong Kong dollars)

(Reporting By Samuel Shen, Cheng Leng and Tony Munroe; Additional reporting by Joy Leung and Clare Jim in Hong Kong and Marc Jones in London; Writing by Anne Marie Roantree; Editing by Kim Coghill, Muralikumar Anantharaman, Jan Harvey and David Clarke)

By Marc Jones

SHANGHAI/BEIJING/LONDON (Reuters) – China’s property sector suffered a fresh pounding on Tuesday as Kaisa Group made a desperate plea for help, Beijing-backed firms began to wobble and the U.S. Federal Reserve sent its first direct warning about potential global damage.

Bonds issued by developers slumped after sources said Kaisa, which was the first Chinese property firm to default back in 2015, told a meeting on Monday with a government think-tank and some of its peers and the country’s banks and that it needed help to pay loans, workers and suppliers.

Much larger companies were tumbling too. Country Garden, China’s biggest developer by sales, and China Vanke, which is seen as one of the sector’s most solid firms due to partial state ownership, saw their biggest bond price falls on record.

Investment grade bonds issued by Shimao, meanwhile, fell below some of their junk-rated rivals.

“Investment grade firms and the state-owned names are now feeling the heat,” said Seaport credit analyst Himanshu Porwal.

“It is more about the fear factor playing out and people trying to exit as soon as they can and going into ‘sell first, think later’ mode.”

The slides in bond prices came just hours after the U.S. Federal Reserve warned that China’s troubled property sector could pose global risks https://reut.rs/3C4DMTn.

“Financial stresses in China could strain global financial markets through a deterioration of risk sentiment, (and) pose risks to global economic growth,” the Fed said in its twice-yearly financial stability report.

Underscoring the liquidity crunch, Fitch downgraded Kaisa closer to default on Tuesday, citing its deteriorating finances, struggle to sell assets and undisclosed debt in its wealth management unit.

“We sincerely ask investors to give Kaisa Group more time and patience,” the company said in a plea on its official WeChat account late on Monday.

CRY FOR HELP

Kaisa is China’s 25th largest developer by sales but only China Evergrande Group, the poster child for the current crisis, has a bigger bond repayment bill next year.

Kaisa attended a meeting on Monday with the Development Research Center of the State Council, other developers and banks in the southern Chinese city of Shenzhen, a well-placed source told Reuters.

The think-tank makes policy proposals on China’s national development and its economy but is not a decision-making body.

At the meeting, Shenzhen-based Kaisa urged state companies to help struggling privately run peers by buying some of their projects and making other strategic purchases, the source said.

Participants at the meeting included China Vanke, Ping An Bank, China Citic Bank, China Construction Bank, CR Trust, Southern Asset Management and developer Excellence Group, according to the source.

Kaisa said it was facing significant difficulties and some financial institutions had transferred funds from its accounts. It also called for lawsuits seeking to freeze its assets to be handled centrally in a Shenzhen court, the source said.

Kaisa, Vanke and Citic Bank declined to comment. Neither Excellence, other banks that participated in the meeting nor the State Council Information Office immediately responded to requests for comment.

(Graphic: China property woes worsen: https://fingfx.thomsonreuters.com/gfx/mkt/zgvomkkljvd/Pasted%20image%201636466014891.png)

SYSTEMIC?

China’s property woes rattled global markets in September and October. There was a brief lull in mid-October after Beijing tried to reassure markets the crisis would not be allowed to spiral out of control but concerns have resurfaced https://reut.rs/3qmXXK4.

“The problem is, it is getting systemic,” said Viktor Szabo, a London-based emerging market portfolio manager at abrdn, saying many Chinese property developers could no longer access borrowing markets and get financing.

“The big issue is that we don’t know what (Beijing’s) ultimate plan is … and how long can you hold on to the view that China can handle it?”

Trading in shares of Kaisa and three of its units was suspended last week, a day after an affiliate missed a payment to onshore investors.

Evergrande, the world’s most indebted developer, has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.

Another overdue $148 million bond payment must be made on Wednesday and it has coupon payments totalling more than $255 million on its June 2023 and 2025 bonds on Dec. 28.

Beijing has been prodding government-owned firms and state-backed property developers to purchase some of Evergrande’s assets to try to control the fall.

Its shares ended higher on Tuesday after it sold a $52 million stake in HengTen Networks Group, taking its fundraising from selling down its holding in the Chinese internet services provider to $144 million since Nov. 4.

Separately, shares of small developer China Aoyuan jumped more than 6% after Infini Capital told Reuters on Tuesday it had been accumulating stakes in the firm’s property management unit Aoyuan Healthy Life Group and was now its second-largest shareholder.

($1 = 7.7840 Hong Kong dollars)

(Reporting By Samuel Shen, Cheng Leng and Tony Munroe; Additional reporting by Joy Leung and Clare Jim in Hong Kong and Marc Jones in London; Writing by Anne Marie Roantree; Editing by Kim Coghill, Muralikumar Anantharaman, Jan Harvey and David Clarke)