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Delayed Hong Kong Stock Exchange  -  03/31 04:08:07 am EDT
4.580 HKD   -5.18%
05/16China developer Zhongliang seals bond repayment extension as Beijing struggles to contain risks
05/15Sunac Pays Renminbi Bonds After Offshore Default
05/15Chinese developers' debt woes worsen as sales, yuan weaken
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Chinese developers' debt woes worsen as sales, yuan weaken

05/15/2022 | 07:00pm EDT
FILE PHOTO: Yuan banknotes are seen in this illustrative photograph taken in Beijing

HONG KONG, May 13 (Reuters) - Chinese developer Zhongliang Holdings is scrambling to secure bondholder approval to extend the repayment on notes worth $729 million ahead of a key deadline next week, joining peers desperate to avoid offshore debt defaults.

The Shanghai-based company has struggled to sell enough houses amid a sustained property downturn in China or secure refinancing to pay investors who are due full redemption on their bonds in May and July.

A bond default by Zhongliang would deepen investor worries about China's property sector as Beijing seeks to shore up confidence in the wider economy.

Even if Zhongliang gets approval to extend by another year, the developer, reeling under a cash crunch, would need to pay an additional $1.25 million on its bond coupons now due to a weaker yuan. For other cash-strapped issuers with heavier debt burdens, additional repayment costs due to the currency swing could be much larger.

"The situation is definitely more severe this time," said Zhongliang Chief Financial Officer Albert Yau, comparing current conditions to the yuan's last major decline in 2018.

Unlike the 2018 tumble, developers are now unable to refinance offshore after a series of defaults by other issuers in the troubled sector made new debt raising impossible. That means repayments would need to be transferred from onshore yuan accounts.

Zhongliang asked holders of its May and July 2022 notes in late April to delay the maturities by exchanging their bonds for new issuance due next year.

Bondholders have until late Monday to give their consent, a deadline extended from May 10. Failure to secure 90% approval would likely result in a default.


Casting a cloud over Zhongliang's tight cashflow is a grim outlook for the property market, which is now depressed by strict COVID-19 lockdowns in many Chinese cities. Zhongliang's sales have plunged 55% in the first four months of 2022.

"We expect it will take a longer period of time for sales to recover - it's a long-term battle," Yau said, adding the developer's business in 40% of the coastal cities were disrupted because of the lockdowns.

A sharp slowdown in home sales in the world's second-largest economy and a weaker yuan are set to pile pressure on property developers already struggling to repay debt and raise fresh capital.

An over 6% drop in the yuan has made offshore debt maturities worth around $20 billion for rest of the year more expensive for developers, some of whom have already defaulted on their repayment obligations this year.

Sunac China on Wednesday became the latest to join other developers that have failed to make dollar bond payments in the recent months, renewing investor concerns about the sector that accounts for a quarter of the country's economy.

The developers, who were hoping for the market to bottom out in the second quarter, are revising down investor expectations for full-year sales after posting a 50% plunge in the first four months, with no demand rebound seen in the near future.

A developer based in the Guangdong province said city curbs not only hurt short-term sales but also affect longer-term purchasing power with potential buyers feeling insecure about their jobs.

The mounting challenges for the developers come against the backdrop of repeated assurances by the Chinese policymakers and regulators to ensure healthy sector development by avoiding defaults and efforts including banks extending loans.

"It is indeed a double whammy situation that they will face, not only about this weaker revenue but on the other hand it's this weaker currency plus higher yield," said Gary Ng, Asia Pacific senior economist of Natixis.

"I think definitely there will be more concerns in terms of repayment ability as we have seen the default ratio, which is dominated by real estate developers in the offshore market, has increased."

An executive of another listed developer, who has delayed its dollar bond payments to next year, said a weaker yuan has a big long-term impact on its offshore debt restructuring under discussions because it will become much more expensive.

The executive declined to be named because the restructuring discussion is private. (Reporting by Clare Jim; Editing by Sumeet Chatterjee and Sam Holmes)

© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CHINESE YUAN RENMINBI (AUD/CNY) -0.47% 4.705885 Delayed Quote.2.52%
BRITISH POUND / CHINESE YUAN RENMINBI (GBP/CNY) 0.16% 8.371831 Delayed Quote.-2.66%
CANADIAN DOLLAR / CHINESE YUAN RENMINBI (CAD/CNY) -0.42% 5.212 Delayed Quote.4.17%
COASTAL CORPORATION LIMITED -0.27% 313.4 End-of-day quote.-1.66%
EURO / CHINESE YUAN RENMINBI (EUR/CNY) -0.46% 7.0675 Delayed Quote.-1.69%
INDIAN RUPEE / CHINESE YUAN RENMINBI (INR/CNY) -0.89% 0.085956 Delayed Quote.1.66%
INVESTOR AB (PUBL) 1.69% 192.7 Delayed Quote.-19.24%
SECURE, INC. 1.51% 1007 Delayed Quote.-57.42%
SUNAC CHINA HOLDINGS LIMITED -5.18% 4.58 Delayed Quote.-61.12%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.00% 6.6921 Delayed Quote.5.67%
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Sales 2021 266 B 41 999 M 41 999 M
Net income 2021 23 800 M 3 754 M 3 754 M
Net Debt 2021 174 B 27 490 M 27 490 M
P/E ratio 2021 0,83x
Yield 2021 26,1%
Capitalization 20 202 M 3 180 M 3 186 M
EV / Sales 2021 0,73x
EV / Sales 2022 0,70x
Nbr of Employees 68 663
Free-Float 60,3%
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Mean consensus OUTPERFORM
Number of Analysts 15
Last Close Price 3,71 CNY
Average target price 12,43 CNY
Spread / Average Target 235%
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Managers and Directors
Meng De Wang Chief Executive Officer & Executive Director
Shu Ping Huang Executive President & Executive Director
Xi Gao Chief Financial Officer, Secretary & VP
Hong Bin Sun Chairman
Zhi Xia Ma Executive President & Chief Operating Officer