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China's Modern Land defaults on bond payment; property shares drop

EconomyOct 26, 2021 10:58AM ET
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2/2 © Reuters. FILE PHOTO: The company logo is seen on the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song 2/2

By Donny Kwok and Andrew Galbraith

HONG KONG/SHANGHAI (Reuters) -Modern Land defaulted on a bond payment, the latest Chinese property developer to do so, adding to worries about the wider impact of the debt crisis at behemoth China Evergrande Group, and weighing on shares in the sector.

Modern Land (China) Co Ltd said in a filing on Tuesday that it had not repaid principal and interest on its 12.85% senior notes that matured on Monday due to "unexpected liquidity issues". The bond has outstanding principal of $250 million.

Separately, China's state planner said it and the foreign exchange regulator met with companies in "key sectors", which a source said included property firms, over their foreign debt holdings, asking them to "optimise" offshore debt structures and prepare to repay interest and principal on foreign bonds.

Modern Land's missed payment comes days after the company, a smaller developer, scrapped plans to seek investor consent to extend the maturity date of the bond by three months, saying doing so was not in the best interests of it and its stakeholders.

Ratings agency Fitch earlier this month cut Modern Land's rating to "C" from "B" over the attempt to change bond terms, saying it considered the move a distressed debt exchange. The debt default prompted ratings downgrades by Fitch and Moody's (NYSE:MCO).

Developers are defaulting "one by one", said an investor with exposure to Chinese high-yield debt, who asked not to be identified as he is not authorised to speak to media.

"The question is always, who's next?"

REGULATORS WEIGH IN

After weeks of near-silence as investor worries over Evergrande and other developers mounted, Chinese regulators including the central nL1N2RB0PHbank have become increasingly vocal.

Late on Tuesday, China's National Development and Reform Commission said that it and the State Administration for Foreign Exchange had met with foreign debt issuers, telling them to use funds for approved purposes and "jointly maintain their own reputations and the overall order of the market".

This month, Fantasia Holdings Group defaulted on a maturing dollar bond that heightened concerns in international debt markets, already roiled by worries over whether Evergrande would meet its obligations.

Evergrande, which narrowly averted a costly default https://www.reuters.com/world/china/china-evergrande-sends-funds-trustee-bond-coupon-due-sept-23-source-2021-10-22 last week, is reeling under more than $300 billion in liabilities and has a major payment deadline on Friday.

The company said on Tuesday it would deliver 31 real estate projects under construction in China's Pearl River Delta region by the end of 2021. That number will rise to 40 by the end of June 2022, Evergrande said in comments to Reuters.

Evergrande had said on Sunday it had resumed work on more than 10 projects in six cities, including Shenzhen in southern China, after earlier halting them because it was unable to pay contractors. The developer has some 1,300 real estate projects across China in total.

Shares of property developers extended losses, hurt also by concern over China's plans to introduce a real estate tax https://www.reuters.com/business/finance/china-says-will-roll-out-property-tax-pilot-scheme-some-regions-xinhua-2021-10-23.

China's CSI 300 Real Estate Index fell 2.8%, and the Hang Seng Mainland Properties Index dropped 4.3%. The broader Hang Seng index edged down 0.4% while China's CSI300 index slipped 0.3%.

The prospect of contagion and more defaults have weighed on the sector in a major setback for investors.

Chinese Estates Holdings Ltd said it would book a loss of HK$288.37 million ($2.24 billion) this fiscal year from its latest sale of bonds issued by Chinese property developer Kaisa Group Holdings Ltd.

Modern Land's 11.8% February 2022 bond was down 1.6% at a discount of over 80% from its face value, yielding about 1,183%, according to data provider Duration Finance.

Evergrande shares ended the day down more than 4%. Shares in its electric vehicle (EV) unit closed down 6.75% after earlier rising as much as 5.8%.

China's Modern Land defaults on bond payment; property shares drop
 

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Comments (4)
Steffen vdm
Steffen vdm Oct 26, 2021 10:38AM ET
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Like Covid: it originated in China. Like Covid: it will spread to the rest of the world. Like Covid: it will bring the markets to its knees.
Kaveh Sun
Kaveh Sun Oct 26, 2021 9:29AM ET
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This is the result the their over built. Now, not enough buyers / income to pay for their huge bond payments.
By designe
Bydesigne Oct 26, 2021 9:29AM ET
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No they got the west to build up the industry and economy. Limiting under 18 time Playing games! The west wishes they could do that.
David Paitsel
David Paitsel Oct 26, 2021 9:05AM ET
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China’s housing fall is the start of a world wide recession!
Edward Chong
Edward Chong Oct 26, 2021 9:05AM ET
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i guess u never been to China before.
perplexed76 .
perplexed76 . Oct 26, 2021 3:54AM ET
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irrelevant news was shrugged off. Let's keep talkin about facbuk
 
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