Record Chinese bond defaults in focus as Modern Land misses deadline

China has clamped down on its indebted real estate sector, making it difficult for developers to refinance as they face falling home prices and sales. PHOTO: EPA-EFE

HONG KONG (REUTERS, BLOOMBERG) - Modern Land China reported a missed payment on Tuesday (Oct 26), the latest Chinese property developer to do so, adding to worries about spiralling effects of the debt crisis at behemoth China Evergrande Group and dragging on shares in the sector.

China's state planner is set to meet with property firms carrying large US dollar-denominated debts later in the day to take stock of their total issuance volume and repayment capability, amid the mounting concerns about liquidity.

Evergrande, which narrowly averted a costly default last week, is reeling under more than US$300 billion (S$404 billion) in liabilities and has a major payment deadline on Friday.

Modern Land, which is based in Beijing and builds energy-saving homes throughout the nation, didn't repay either the principal or interest on a US$250 million (S$336.8 million) bond due Monday (Oct 25), according to a filing on Tuesday morning. The company is working with its legal counsel Sidley Austin and expects to engage independent financial advisors soon, the filing said.

Chinese borrowers have defaulted on a record of at least US$8.7 billion of offshore bonds so far this year, with the real estate industry accounting for one-third of that amount. That's come as authorities clamp down on excessive leverage in the real estate sector amid a crisis at Evergrande that has left many investors around the world on edge.

Multiple developers have defaulted this month, though Evergrande made a coupon payment last week before a grace period expired. Still, Evergrande's creditors are bracing for an eventual debt restructuring that could rank among the largest ever in China.

Modern Land last week terminated a proposal to extend the bond's maturity by three months. Fitch Ratings downgraded Modern Land to C from B following the proposed bond extension, considering it a "distressed debt exchange."

Credit-rating downgrades of Chinese developers have accelerated further in October, hitting a record high for a second straight month. There were 44 cuts in the sector by Moody's Investors Service, S&P Global Ratings and Fitch Ratings as of Oct 21, after 34 downgrades for all of September, according to Bloomberg-compiled data.

Ratings reductions surged in the third quarter as China Evergrande Group's troubles fueled broader debt-related worries. Ongoing downgrades, occurring as developers face heavy operational and refinancing pressure, "will worsen their capability of raising funds," said Ma Dong, a partner with Chinese bond firm BG Capital Management.

Chinese Estates Holdings said on Tuesday it would book a loss of HK$288.37 million (S$50 million) in the current financial year from its latest sale of bonds issued by Chinese property developer Kaisa Group Holdings.

Meanwhile, shares of Chinese property shares extended losses, hurt also by concerns over plans to introduce a real estate tax. China's CSI 300 Real Estate Index fell 2.6 per cent, and the Hang Seng Mainland Properties Index slumped nearly 5 per cent.

Shares in China Evergrande Group's electric vehicle (EV) unit rose as much as 5.8 per cent early on Tuesday, as the cash-strapped developer said it would prioritise the growth of its EV business, before reversing course to slump 3 per cent.

China Evergrande gave up early gains to fall 6 per cent.

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