Shares and bonds of Chinese property developers stumbled on Tuesday as worries over spreading financial contagion worsened, following a debt exchange from one of the country’s top 20 homebuilders that triggered a flurry of credit warnings.
Yango Group on Monday offered to exchange some US dollar bonds for new notes personally guaranteed by its chairman to avoid defaulting on upcoming debt payments.
Fitch Ratings said on Tuesday it considered the offer a distressed debt exchange, downgrading Yango’s rating to “C” from “B-“. Moody’s Investors Service earlier cut Yango’s corporate family rating to Caa2 from B2, citing liquidity risk.
“Yango may not be able to mobilise all of its cash holdings to repay its maturing debts, given that most of it resides in its project companies. In addition, Yango’s exposure to its joint ventures is significant, which could limit its ability to control its cash flow,” Moody’s said in a statement.
China Chengxin International, a domestic agency, said it had placed the company on a watchlist for possible downgrades, while Dagong Global Credit Rating cut its outlook on Yango on Monday to negative due to uncertainty over funds for debt repayment.
Yango Group did not immediately respond to requests for comment.
The downgrades and warnings weighed on market sentiment on Tuesday, pushing Hong Kong’s mainland properties sub-index down more than 4%, taking its losses since an October 22 peak – when China Evergrande Group narrowly avoided a $19 billion default – to nearly 17%.
Real Estate Index Down 3%
The CSI300 real estate index of A-shares fell more than 3%, while Yango’s own shares fell as much as 9%.
Yango Group’s bonds fell sharply for a second day, with Duration Finance quoting its 12% March 2024 bond down almost 58% on the day to less than 13 cents, yielding nearly 160%. Its Shenzhen-traded April 2024 bond fell more than 15%.
November 2022 and 2023 bonds issued by Evergrande unit Scenery Journey fell more than 12% to about 20% of their face value ahead of coupon payments totalling $82.5 million this weekend.
Bonds issued by developers Yuzhou Group Holdings, Ronshine China Holdings and Zhenro Properties Group also fell more than 10%.
Evergrande narrowly avoided a catastrophic default for the second time in a week on Friday, making a last-minute payment on an overdue dollar bond coupon. On Tuesday its shares gave up early gains to fall 2.5%.
Evergrande’s woes have brought collateral damage to China’s property sector, with some Chinese developers forced into formal default on their dollar bonds last month and others proposing extended payment schedules.
• Reuters with additional editing by Jim Pollard