Chinese state-backed builder shakes up bond market with expansion plan


(Bloomberg) – A Chinese real estate company long considered one of the country’s most resilient investors has shocked with a proposal to delay payment of dollar bonds, raising further doubts about the financial strength of the sector’s highest-rated borrowers. .

Greenland Holdings Corp., whose shareholders include the Shanghai government, is asking holders of a $488 million note due June 25 to delay repayment for a year, a rare sign of stress in a business linked to the coronavirus. ‘State. Its bond prices have fallen from a high of 92 cents on the dollar to a record low of 31 cents in recent days as fears of an extension are confirmed.

The proposal from Greenland, which has a presence in 30 countries, comes despite a wave of government support measures aimed at protecting top-rated borrowers. Policymakers have stepped up their efforts since March, cutting key interest rates and encouraging bond sales by some builders, although a broader lack of action has left some investors disappointed. Last week, Chinese Premier Li Keqiang urged local governments to “act decisively” on measures to boost growth.

Signs of stress in a company like Greenland, China’s 11th largest builder, are a worrying sign that even borrowers who have some level of state support may no longer count on support when they run into trouble. . The builder’s expansion proposal “signalls that quasi-public developers are not immune to a liquidity crunch caused by prolonged Covid-zero lockdowns and increased refinancing pressure due to the market shutdown for weak developers,” Bloomberg Intelligence analysts Dan Wang and Daniel Fan wrote in a report.

State-owned enterprises, businesses backed by local or provincial governments, have so far been spared the credit crunch that has swept through the real estate sector as authorities moved to clamp down on such indebted borrowers. A default in Greenland could lead to a drastic reassessment of risk among state-owned enterprises and “a wave of rating downgrades could occur and cause systemic risk to the financial system,” Wang and Fan wrote.

Fears of contagion are resurfacing among other promoters with state ties as investors reassess the value of that support. The dollar bond of Sino-Ocean Group Holding Ltd. maturing in 2025 fell 8 cents to 72.6 cents on Friday, forecast for its biggest drop since November.

Avoid the defect

Builders across the country have scrambled to extend deadlines or swap maturing notes to avoid outright default, as key financing channels remain closed to many builders.

Greenland is offering a one-year extension of its 6.75% dollar bond due June 25 with an upfront payment of 10% of the amount outstanding, according to people familiar with the matter. The bond plunged another 39 cents after falling 19 cents on Thursday, according to prices compiled by Bloomberg.

S&P Global Ratings downgraded Greenland Holding Group Co. unit two notches to B- this week and placed the company on watch for further cuts. He cited uncertainty over the developer’s ability to divest assets and generate internal resources to repay offshore debt due in the next three to six months. Moody’s Investors Service expressed similar concerns in its own downgrade earlier this month.

Lock pressure

Greenland’s debt problems are also an indication of the economic damage and financial stress that China’s strict Covid lockdowns are causing to struggling property businesses.

The company’s “business operations, financial performance and short-term liquidity have been affected” by the recent spike in coronavirus cases in Shanghai and across China, as well as pandemic control measures such as closures and travel restrictions, according to a filing on Friday with the Hong Kong stock exchange. About half of its sales offices across the country have suspended operations, he said.

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