LONDON (BLOOMBERG) - Investors are bracing themselves for a fresh wave of volatility in China's credit markets this week, as a barrage of payment deadlines looms for some of the property sector's most distressed firms.
China Evergrande Group is seeking to avoid its first default on an onshore bond when holders vote on whether to allow the firm to defer payment on Thursday.
Meanwhile, Shimao Group Holdings - which was rated investment grade only two months ago - and one of its onshore units also need to service some US$376 million (S$507 million) in upcoming bond payments this week.
The credit crunch in China's property sector drove defaults to a record last year, sending stress levels in the overseas credit market to the highest possible reading in Bloomberg's China credit tracker in December.
That is likely to continue as builders faced at least US$197 billion in maturing bonds, coupons, trust products and deferred wages to millions of migrant workers at the start of the month.
Offshore bond holders are already feeling some pain this week after Guangzhou R&F Properties repurchased just 16 per cent of outstanding notes in a tender and consent solicitation that Fitch Ratings labelled a "distressed exchange".
The firm initially said it expected to set aside US$300 million for a deal, before announcing that it had "materially less".
Companies are expected to keep up a record pace of payment failures this year, even as the authorities call on banks to boost real estate lending in the first quarter and ease a key debt restriction for developers.
Prohibitively high borrowing costs in the offshore market have effectively frozen many builders out of the offshore bond market, making it difficult to roll over that debt.
Shimao Group, which builds residential, hotel, office and commercial properties, faces a series of coupon payments this week. It has a US$6.9 million dollar bond coupon due on Thursday.
Its onshore subsidiary Shanghai Shimao has set aside funds to repay a 4.65 per cent local bond maturing on Saturday with an outstanding principal of 1.9 billion yuan (S$403 million), according to people familiar with the matter. Until recently, Shimao Group was considered one of the industry's healthier players.
Last week, it suffered a bond rout after a creditor said one of the developer's units defaulted on a local loan.
Any failure at the firm could pose a bigger risk to credit markets than the crisis at Evergrande, according to some investors. Evergrande is looking to avert its first possible default on a local bond by winning sufficient support from creditors to delay repayment. The firm has already extended the voting deadline to Thursday.
The property giant's onshore unit Hengda Real Estate needs the majority of bond holders to approve its proposal to postpone the deadline on a 4.5 billion yuan bond from Jan 8 to six months later. Holders previously demanded early repayment on the note, which matures in 2023.
The firm was labelled a defaulter for the first time in early December after it missed making payments on dollar bonds. A seven-member risk management committee was established at that time to "actively engage" with creditors.
Key payments due from Jan 8 to 16
- Logan: US$9.56 million coupon on note due 2025, first deadline Jan 12
- Shimao: US$6.9 million coupon on note due 2030, first deadline Jan 13
- Greentown: US$8.48 million coupon on note due 2025, first deadline Jan 13
- Greentown: 98 million yuan coupon on note due 2026, first deadline Jan 13
- Logan: US$6.75 million coupon on note due 2028, first deadline Jan 13
- Redsun: US$12.8 million coupon on note due 2025, first deadline Jan 13
- Seazen Group: US$6.68 million coupon on note due 2025, first deadline Jan 13
- KWG: US$11.1 million coupon on note due 2027, first deadline Jan 13
- Yuzhou: US$23.8 million coupon on note due 2026, first deadline Jan 13
- Yuzhou: US$17.8 million coupon on note due 2027, first deadline Jan 13
- Central China: US$9.75 million coupon on note due 2025, first deadline Jan 14
- Logan: US$8.63 million coupon on note due 2025, first deadline Jan 14
- Times China: US$10.1 million coupon on note due 2027, first deadline Jan 14
- Shanghai Shimao: 2 billion yuan maturity, 93 million yuan coupon on note due 2022, Jan 15
- Shimao: US$28 million coupon on note due 2026, first deadline Jan 15
- Shimao: US$13 million coupon on note due 2027, first deadline Jan 16
