HONG KONG: One of China’s leading developers is now on authorities’ radar for default risk. A major Hong Kong builder is asking lenders to extend loans. Another industry peer is selling an iconic but largely empty mall in Beijing.
As China’s property debt crisis enters its fifth year, there’s little indication that distressed developers are finding it easier to repay debt as a slump in home sales continues.
Its dollar bonds are still trading at deeply distressed levels, its debt issuance has nearly dried up, and the sector a notable laggard in stock markets.
Alarm bells went off again in recent weeks, when the banking regulator told top insurers to report their financial exposure to China Vanke Co to assess how much support the country’s fourth-largest developer by sales needs to avoid default.
Over in Hong Kong, New World Development Co sought to delay some loan maturities while Parkview Group put up a landmark commercial complex for sale in Beijing.
The latest signs of stress are adding to concerns that the worst is far from over for the housing sector in the world’s No 2 economy, once a powerful growth engine and now a big drag on demand for items from furniture to cars.
And they are particularly worrying because Vanke’s woes show the liquidity crisis is hurting one of the few big builders that have avoided default so far.
The trouble faced by its Hong Kong peers, meanwhile, means the contagion is increasingly felt offshore.
“While recent government policies have helped to arrest the speed of decline, it could take another one or two years for the sector to bottom,” said Leonard Law, senior credit analyst at Lucror Analytics.
“Against this backdrop, we can’t rule out the possibility of some more defaults next year, albeit the overall default rate should be much lower than before.”
Chinese authorities have stepped up efforts in recent years to ease the country’s unprecedented housing slowdown, including interest rate cuts, slashing purchasing costs and restrictions, as well as state guarantees for bond sales by stronger developers.
Top leaders also pledged to stabilise the property market next year at a key economic meeting earlier this month.
However, the rescue measures adopted so far have focused on preventing a collapse in property prices, protecting owners of unfinished apartments and using state funds to help absorb excess supply.
At the same time, policymakers chose to look on as former industry behemoths China Evergrande Group and Country Garden Holdings Co became defaulters.
This is why the banking regulator’s queries over insurance firms’ exposure to Vanke’s bonds and private debt have drawn much attention.
The insurers conducted similar checks in March as fears grew over the builder’s repayment risks.
Separately, Vanke executives have visited several insurers in the past few weeks, urging them not to exercise put options on some private debt that will soon become open to them.
“If there is no turnaround in property sales, asset disposals remain slow in a weak property market, and financial institutions become more cautious and require additional collateral, we believe Vanke could see a liquidity shortage sooner than expected,” Jefferies Financial Group Inc analysts including Shujin Chen wrote in a note.
“We still put the likelihood of a government bailout at below 50%.” Vanke’s dollar bond due May 2025 dropped about 10 US cents in the past week to around 80 US cents on the dollar, the biggest weekly decline in more than a year.— Bloomberg