Chinese property developer bonds fell on Tuesday, while the Hang Seng mainland properties index fell 1.4% and the CSI300 real estate index fell 1.1%, according to Reuters.
The Shanghai Stock Exchange’s list of the day’s biggest losers was dominated by onshore bonds issued by Logan Group Co. and Shimao Group Holdings units, which plummeted between 2% and 7%. Zhenro’s dollar bonds have dropped even further, with a 7.1% on bonds due September 2024, for less than 15 cents on the dollar.
Fitch Ratings on Tuesday downgraded Zhenro Properties Group Limited’s Long-Term Issuer Default Rating to ‘B’ from ‘B+’ and flagged a Rating Watch Negative. The reduction is based on Zhenro’s slow progress in addressing significant capital market maturities in 2022, as well as a material drop in contracted sales.
In its rating action commentary, Fitch said, “The capital market remains inaccessible to Zhenro, and we believe that the company may have to rely mostly on cash generation from contracted sales to repay its capital market maturities in 2022.”
Raymond Cheng, an analyst at CGS-CIMB Research in Hong Kong, said, “Sales were down 40% to 50% year on year (for some developers). Based on this, we expect policymakers will launch more supportive measures. But in the near term, those developers, if they have liquidity problems, then they still really have problems. This concern is spreading out to mid-size developers.”
On Feb. 11, credit rating agency Moody’s downgraded the Chinese property giant Sunac’s credit rating due to the company’s limited financing channels and deteriorating liquidity, further reflecting the increased financial risk of Chinese real estate companies.
Meanwhile, China’s real estate difficulties have reached London as many Chinese real estate developers struggle in this market, like Greenland Group, Shimao Group Holdings, China Vanke, Fosun International Holdings Ltd.
BloombergQuint reported that almost two dozen buildings in London’s Royal Albert Dock are primarily unoccupied. Shimao Chairman Xu Rongmao spoke with Goldman Sachs about selling an office property in London’s Paternoster Square. China Vanke Co. and Fosun International Holdings Ltd. are looking to sell London office buildings.
In a note last week, Bloomberg Intelligence senior analyst Patrick Wong wrote that “China’s debt-saddled private developers face growing risks of a liquidity crunch, with home buyers and bondholders’ shattered confidence raising the specter of broader financial contagion.”
According to Real Capital Analytics Inc. data, mainland Chinese real estate transactions in the United Kingdom have decreased by approximately 88% over the last five years. According to the data, the reduction in development site deals was even more dramatic, dropping to just $12.8 million last year from a 2017 high of $829.3 million.