Chinese Property Developers Sell Shares As Default Woes Deepen

By Fran Wang
Fran Wang
Fran Wang
November 20, 2021 Updated: November 20, 2021

Chinese property developers are stepping up efforts to raise cash through share placements and stake sales, as they look for ways to alleviate the historical liquidity squeeze.

Surging yields in the offshore bond market have made it difficult for Chinese developers to refinance, and declining home sales have added to the gloom. Debt default woes at cash-strapped developers fuel investor concerns about the financial contagion.

Evergrande Default ‘Highly Likely’

Evergrande announced on Nov. 18 it was selling its entire stake in the streaming platform firm HengTen at HK$1.28 apiece, a discount of 24 percent to its closing price on the prior day, and raised about $273 million.

As its liquidity crisis deepened, Evergrande said that it will book a loss of $1.1 billion from the sale, according to its Hong Kong exchange filing (pdf).

However, S&P Global Ratings said in a report the same day that a default is still “highly likely” for the world’s most indebted developer, because it faces a larger test in March and April next year, with $3.5 billion in dollar bond maturities.

“The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely,” said the report.

In recent weeks, the Shenzhen-based real estate firm has been struggling from deadline to deadline as it battles with more over $300 billion in liabilities, $19 billion of which are international market bonds.

Sunac Raised $953 Million, Chairman Personally Provided $450 Million 

Sunac China Holdings Ltd. said it raised $953 million on Nov. 17 through the sale of new shares as well as a stake in its property management unit, in a statement (pdf) filed in the Hong Kong exchange.

China’s fourth-largest property company by sales sold 335 million shares at $1.95 each, raising about $653 million.  Another $300 million came from a sale of 158 million shares in its property management arm Sunac Services, via a subsidiary, at $1.89.

It was “a right move” for Sunac, reported by Reuters quoting a note from broker-dealer Jefferies. The company gathered sufficient funding to solve its tight short-term liquidity, which was driven by weak home sales and refinancing difficulties.

Sun Hongbin, the controlling shareholder of Sunac and chairman of the board, also provided $450 million from his own funds in the form of an interest-free loan.

Many of the property giants are shut out of financial markets due to soaring borrowing costs, and Beijing’s “three red lines” metrics that were set to restrict leverage in the industry.

Sunac met one of three red lines with its 76 percent reading on liabilities to assets, missing the 70 percent target.

Among the country’s top 30 property companies by sales, two-thirds have breached at least one of the three red lines, Bloomberg reported.

Country Gardens and Other Developers

Country Garden Services, a property services unit of top developer Country Gardens, raised $1 billion Thursday from placing 4.5 percent of enlarged shares, reported Reuters, citing sources with direct knowledge.

Country Garden Services’ shares were suspended from trading beginning on Thursday, while parent Country Garden’s dropped 5.1 percent.

Agile Group raised $311 million through the sale of bonds convertible into shares of its property management unit A-Living Smart City Services Co., according to its exchange filing (pdf) dated Nov 18. Agile said it has remitted funds to repay its $190 million senior notes due Thursday.

CIFI Holdings also raised $214.5 million via a rights issue earlier in November, while Shimao Services raised a total of $616.1 million via a new share placement as well as convertible bonds.

China’s Home Sales Declining

Home and land sale downturns have clouded the real estate industry’s outlook for struggling developers seeking desperately needed capital.

New home offers by area at the nation’s top 29 cities fell 30 percent in October from a year earlier, and land parcel sales by area fell 58 percent, according to a report from China Real Estate Information Corp.

Evergrande’s property sales for September through Oct. 20 totaled $571 million, a tiny fraction of the $22.2 billion it recorded a year earlier. Sales plunged about 97 percent during the peak home-buying season.

Reuters contributed to this report.

Fran Wang