This Chinese developer has 3 days to prove it's not Kaisa II

SINGAPORE (Bloomberg) - Renhe Commercial Holdings Co. faces the glare of the offshore bond market on Monday when the Chinese developer shows its ability to repay debt.

The pressure on Renhe comes after Standard & Poor's called its recent discounted buyback of US dollar notes a "distressed exchange" that equaled a default. The mall builder is scheduled to repay US$79 million of securities maturing on May 18 to investors who snubbed the December offer.

Tensions are simmering in China's U.S. currency debt market after two companies defaulted on coupons in the last month amid signs of more financial stress in the world's second-biggest economy. While Renhe has enough cash to pay Monday's bills, honoring a further US$161 million of bonds maturing next year could prove a more challenging task, according to S&P.

"I'd be surprised if Renhe risks their going-concern by not paying up," said Xuanlai He, a Singapore-based credit analyst at Commerzbank AG. "It's still early to make a call on their 2016 debt. Their business isn't going well and they may need to raise more cash or roll over loans to boost confidence among offshore investors."

Chairman and founder Dai Yongge controls 49.4 per cent of the company, which listed in Hong Kong in October 2008.

S&P downgraded Renhe's credit rating to "selective default" in January after the developer bought US$660 million of its bonds at discounts of as much as 18 per cent of their face value. The score was revised later that month to CCC, eight levels below investment grade, after the buyback completed.

Homebuilder Kaisa Group Holdings Ltd. defaulted last month, becoming the first Chinese property developer to miss interest payments on its U.S. currency debt. Coal importer Winsway Enterprises Holdings Ltd. last week became the nation's second company to miss a dollar-bond obligation this year, when it didn't pay US$13.2 million of interest.

Renhe, which builds underground shopping malls, saw short-term debts more than double to US$1.4 billion in 2014, according to data compiled by Bloomberg. Its cash flow may be insufficient to redeem the March 2016 bonds and US$400 million of loans due in August next year, S&P said in January.

"Getting more support from shareholders remains an option though we are not sure how viable that is," Christopher Yip, an S&P analyst in Hong Kong, said by phone on May 13. "There aren't much assets for them to sell."

The company had negative free cash flow since the end of 2007, while cash in hand dwindled to US$134 million at the end of last year from more than US$1 billion in 2010. Renhe's stock has slumped about 80 per cent from its 2009 peak to HK$0.415 at 9:53 a.m. on Friday in Hong Kong.

"Traditional shopping malls will have to find ways to lure back shoppers given the stiff competition from the Internet," Union Investment's Kuo said. "Cheaper funding costs onshore might mitigate pressure."