China's property market has taken another turn for the worse as developer Modern Land (China) has cancelled its plan to repay a portion of a US$250 million junk bond and extend it just days before it was set to mature, joining China Evergrande Group and other peers in a financial mess.
At the same time, Chinese Estates Holdings, once Evergrande's second-biggest shareholder, said it sold its holdings in high-yield bonds issued by another Chinese developer Kaisa Group Holdings at a loss. The sales this week at prevailing market rates came just days after Kaisa said it made an interest payment due on its debt last week.
Late Wednesday, Beijing-based Modern Land scrapped a solicitation process related to a 12.85 per cent US$250 million bond due on October 25, citing liquidity issues and saying the exercise "would not be in the best interest of the company" and its stakeholders. It had earlier proposed to pay US$87.5 million of the principal and extend the payment deadline on the balance by three months.
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The decision was made despite an earlier pledge by Modern Land's chairman and its president to lend the company 800 million yuan (US$125.1 million) to ease its cash crunch. It came on the same day Evergrande acrimoniously terminated a deal to sell some of its assets to a rival in an attempt to raise US$2.6 billion of cash and avert a bond default.
Modern Land is now planning to engage an independent financial adviser to assess its capital structure, liquidity profile, operating and financial condition "with a view to achieving a feasible solution to its current liquidity issues," it said in an exchange filing late Wednesday.
On Thursday, Modern Land's shares were suspended in Hong Kong pending an announcement "which would constitute inside information", according to a regulatory filing. The filing did not indicate the nature of the announcement.
The decision by Modern Land to scrap its repayment plans is another blow to investors holding Chinese high-yield bonds issued by developers as the industry continues to show cracks from months of policy tightening by Beijing.
Many cash-strapped developers have been shut out of the loan and bond markets since Chinese authorities added its "three red lines" rules last year to control excessive leverage in the sector. The distress over Evergrande and other developers, such as Fantasia Holdings and Xinyuan Real Estate, has unnerved investors and property buyers alike.
A government report this week showed new home prices across major mainland cities shrank last month for the first time in six years, as confidence among homebuyers weakened amid the fallout triggered by the crisis surrounding Evergrande's ability to repay its US$305 billion in outstanding liabilities.
Evergrande has missed five interest payment deadlines on its offshore debt since late September, according to bondholders, and could be declared in default as soon as this weekend as a 30-day grace period on the first of those missed payments is set to expire.
In an announcement late Wednesday, the world's most indebted developer said it "would continue to seek renewal or extension of its borrowings or other alternative arrangements with its creditors." The firm last month hired outside adviser Houlihan Lokey to reassess its capital structure in a sign of impending restructuring.
"In view of the difficulties, challenges and uncertainties in improving its liquidity, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts," Evergrande said.
Evergrande's shares fell as much as 13.5 per cent in Thursday's morning session in Hong Kong when they resumed trading. Its shares had been suspended for much of October as it unsuccessfully sought to sell its Hong Kong-listed property management services arm and reportedly failed to sell its headquarters in Wan Chai, Hong Kong to another rival.
Chinese Estates was once one of Evergrande's biggest shareholders and the sole cornerstone investor on its November 2009 initial public offering in Hong Kong, but dumped a large chunk of its stake in the developer last month and signalled it planned to possibly exit its holdings entirely.
On Thursday, Chinese Estates said it sold a series of senior notes issued by Kaisa Group for US$20.4 million, including accrued interest in the open market this week. The bonds, due in 2024 and in 2025, had a face value of US$48 million, according to its filing. It expects to book a loss of HK$225.9 million (US$29 million) on the sales.
Kaisa, which became the first Chinese property developer to default on its dollar-denominated debt six years ago and remains a heavy borrower after a debt restructuring several years ago, was downgraded by Moody's Investors Service this week.
On Monday, Kaisa said it had paid a US$39.4 million coupon payment due on October 16 and planned to transfer funds to pay another interest payment due on Friday. Kaisa's shares rose as much as 10 per cent on Thursday morning in Hong Kong.
More from South China Morning Post:
- Evergrande scraps US$2.6 billion sale of property services unit to Hopson, suffering a second rebuff to its asset disposal in a week
- Evergrande crisis: developer Modern Land (China) seeks debt extension, to repay US$87.5 million early
- Evergrande: concerns linger even as embattled developer's Hengda unit makes interest payment on US$327 million onshore bond
- Evergrande: US fund unimpressed as China treats credit distress, bond defaults with kid gloves
- China can 'contain' economic, financial risks posed by Evergrande crisis, central bank chief says