(Bloomberg) – Chinese construction companies are seeking payment extensions or debt swaps to avoid a default on bond obligations amid increasingly restrictive liquidity conditions for the real estate sector.
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Modern Land (China) Co. has asked creditors for a three-month extension of the $ 250 million bond due October 25. At the same time, he announced that two senior executives plan to lend the construction company around US $ 125 million. Xinyuan Real Estate Co. proposed to pay only 5% of the principal in a bond due on October 15 and exchange that debt for bonds due in 2023. Fitch Ratings classified the measure as a debt exchange in “distress” and lowered the company to C.
Modern Land and Xinyuan respectively have $ 1.35 billion and $ 760 million in outstanding dollar bonds, according to data compiled by Bloomberg. By comparison, China Evergrande Group has $ 19.2 billion.
The Beijing government’s crackdown on real estate, and uncertainty about Evergrande’s future sent the nation’s junk dollar bond yields skyrocketing to their highest level in about a decade. In that debt market, dominated by promoters, bonds fell as much as 10 cents on the dollar on Monday, according to credit traders.
Rising borrowing costs raised refinancing risks, as companies may find it difficult to access the offshore bond market. That could set off a wave of defaults across real estate. Late payments from real estate companies accounted for 36% of the record 175 billion yuan ($ 27.2 billion) in defaults on onshore corporate bonds this year, data compiled by Bloomberg shows.
Still, for issuers that can pay, the sell-off can also provide an opportunity to buy back deeply discounted bonds and help shore up balance sheets. The president of Yuzhou Group Holdings Co. recently purchased $ 5.6 million of the company’s dollar bonds through associates, according to a regulatory filing last week.
Meanwhile, investors are still waiting for Evergrande to clarify a possible restructuring or solution to its liquidity crisis that some analysts say could continue for months. Some of the firm’s bondholders fear Evergrande could sell assets they have to back up their claims if the company collapses. The company has $ 148 million due Monday with three dollar bond coupons, according to data compiled by Bloomberg. So far, it has given no indication that it made the expected interest payments in September.
More defaults by Chinese real estate companies are expected under the Beijing government’s deleveraging campaign, said Kenneth Ho, director of Asia credit strategy at Goldman Sachs Group Inc. The sector “needs some kind of policy change to restore confidence.” .
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