China’s Modern Land Misses Bond Payment, Property Shares Drop

By Reuters
Reuters
Reuters
October 26, 2021 Updated: October 26, 2021

HONG KONG/SHANGHAI—Modern Land missed a bond payment, the latest Chinese property developer to do so, adding to worries about the wider impact of the debt crisis at behemoth China Evergrande Group, and dragging on shares in the sector.

Modern Land (China) Co., Ltd. said in a filing that it had not repaid principal and interest on its 12.85 percent senior notes that matured on Monday due to “unexpected liquidity issues.” The bond has an outstanding principal of $250 million.

Separately, China’s state planner said it and the foreign exchange regulator met with companies in “key sectors,” which a source said included property firms, over their foreign debt holdings, asking them to “optimize” offshore debt structures and prepare to repay interest and principal on foreign bonds.

Modern Land’s missed payment comes days after the company, a smaller developer, scrapped plans to seek investor consent to extend the maturity date of its bond by three months, saying doing so was not in the best interests of it and its stakeholders.

Rating agency Fitch earlier this month cut Modern Land’s rating to “C” from “B” over the consent solicitation to change bond terms, saying it considered the move a distressed debt exchange. Tuesday’s missed payment prompted ratings downgrades by Fitch and Moody’s.

Developers are defaulting “one by one,” said an investor with exposure to Chinese high-yield debt, who asked not to be identified as he is not authorized to speak to media.

“The question is always, who’s next?”

Regulators Weigh In

After weeks of near-silence as investor worries over Evergrande and other developers mounted, Chinese regulators including the central bank have become increasingly vocal.

Late on Tuesday, China’s National Development and Reform Commission said that it and the State Administration for Foreign Exchange had met with foreign debt issuers, telling them to use funds for approved purposes and “jointly maintain their own reputations and the overall order of the market.”

This month, Fantasia Holdings Group defaulted on a maturing dollar bond that heightened concerns in international debt markets, already roiled by worries over whether Evergrande would meet its obligations.

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

Shares of property developers extended the losses, hurt also by concern over China’s plans to introduce a real estate tax.

China’s CSI 300 Real Estate Index fell 2.8 percent, and the Hang Seng Mainland Properties Index dropped 4.3 percent. The broader Hang Seng index edged down 0.4 percent while China’s CSI300 index slipped 0.3 percent.

The prospect of contagion and more defaults have weighed on the sector in a major setback for investors.

Chinese Estates Holdings Ltd. said it would book a loss of $2.24 billion this fiscal year from its latest sale of bonds issued by Chinese property developer Kaisa Group Holdings Ltd.

Modern Land’s 11.8 percent February 2022 bond was down 1.6 percent at a discount of over 80 percent from its face value, yielding about 1,183 percent, according to data provider Duration Finance.

China Evergrande shares ended the day down more than 4 percent. Shares in its electric vehicle (EV) unit closed down 6.75 percent after earlier rising as much as 5.8 percent, after the developer said it would prioritize the growth of its EV business.

(This story corrects figure in paragraph 11 to $300 billion not $300 million)

By Donny Kwok and Andrew Galbraith

Reuters