HONG KONG/BEIJING, Aug 14 (Reuters) – China’s largest private property developer Country Garden (2007.HK) is deferring payments on onshore private bonds for the first time, amid a stifling cash shortage for the property. is the latest sign of Increasing pressure on the Chinese government to intervene.
In addition to concerns about the risk of infection, China’s leading trust company, Zhongrong International Trust Co., Ltd., which has traditionally had large exposures to real estate, has defaulted on repayment obligations on some investment products.
Analysts have warned that a rise in defaults by trust companies, also known as shadow banks, with strong ties to the domestic property sector will weigh further on the world’s second-largest economy.
Concerns over the risk of infection have spread across global markets, putting pressure on the Chinese government to seek help in its struggling property sector, which accounts for about a quarter of the economy.
Once seen as a more financially sound developer, Country Garden’s woes could also have a chilling effect on homebuyers and financiers, requiring Chinese government support soon. , more private developers are approaching a tipping point.
The property sector has been hit by sluggish sales, tight liquidity and a string of developer defaults since late 2021, with China Evergrande (3333.HK) at the center of the debt crisis.
Weak overseas demand, weak domestic consumption and deep-seated problems in the real estate sector are the main factors behind China’s struggle to achieve a solid post-COVID-19 recovery.
In a new blow to investor sentiment, two listed Chinese companies announced over the weekend that they had not received payments from China Rong International Trust for their maturing investment products.
Trust companies, or shadow banks, operate outside of many of the rules governing banks, channeling proceeds from wealth products sold by banks to developers and other sectors that do not have direct access to bank funds. .
Concerns about China’s Shadow Bank – a $3 trillion industry roughly the size of the UK economy – giving property developers huge exposure have come a long way in the past as the sector slipped from crisis to crisis. Increased in one year.
JPMorgan said in a research note on Monday that rising trust defaults would directly depress China’s economic growth by 0.3% to 0.4%, anticipating a “vicious cycle” of real estate lending challenges. Ta.
“In addition to the obvious financial risks and their transmission, the recent wave of defaults by wealth managers on trust-related products is likely to cause substantial ramifications across the economy through the wealth effect,” Nomura said in a separate memo. said.
“Big Moments”
A person familiar with the matter said on Monday that Country Garden had offered creditors a three-year extension on its 3.9 billion yuan outstanding land-based private bonds due Sept. 2 in seven installments. .
Country Garden declined to comment. In a separate filing over the weekend, the developer said it would suspend trading in 11 onshore bonds starting Monday, though traders said the move typically implied plans to seek payment extensions.
Country Garden could have to pay off 9 billion yuan ($1.25 billion) worth of domestic bonds in September alone, according to Reuters calculations.
The moratorium on onshore bonds follows a report by Chinese media Yichai on Friday that the company is headed for a debt restructuring after failing to pay $22.5 million worth of coupons on its $2 bond, which expires Aug. 6. It was a measure taken.
The company’s shares plunged 18.4% to HK$0.8 on Monday, dragging down the Hang Seng Mainland Property Index (.HSMPI), which fell 3.7%. The stock has fallen 50% so far this month.
Country Garden offshore bonds also fell, with some bonds trading in the lower six cents to the dollar a day earlier. Since then, most have been slightly stronger.
The predicament adds to fears of spillovers across the real estate market, which is already facing weak buyer demand.
“Problems in the sector have been brewing for a long time. The wealth effect among investors has disappeared and now no one wants to buy property,” said Dicky Wong, executive director at Kingston Securities.
Mr Wong said the sector’s economic impact had reached a “critical moment” and regulators should implement further policies, including further cuts in interest rates and reserve requirements.
China’s economy grew at a weak pace in the second quarter as domestic and foreign demand weakened, prompting leaders to pledge more policy support and analysts to cut their growth forecasts for this year.
State-owned China Jinmao (0817.HK) said in a filing on Sunday that it expects net profit to fall 80% in the first half of this year due to lower gross margins and lower sales at some projects. . Land development income.
The company’s Hong Kong-listed shares fell 4.1% on Monday.
Reported by Clare Jim from Hong Kong and Shuyan Wang from Beijing. Additional reporting by Yuhan Lin from Beijing and Hongwei Li from Shanghai. Written by Sumeet Chatterjee.Editing: Jacqueline Wong, Sri Navaratnam, Simon Cameron Moore, Jan Harvey
Our criteria: Thomson Reuters Trust Principles.