Jingrui Defaults on Four Offshore Bonds, Citing Lockdown-Induced Liquidity Crunch 

Jingrui Holdings has failed to make on-time interest payments on four sets of offshore bonds, with the developer blaming the defaults on the impact of China’s COVID-19 lockdown measures in the group’s home base of Shanghai and other key cities.

Jingrui missed interest payments on the bonds totalling $59.3 million, the group said late Friday in a filing with the Hong Kong stock exchange. The bonds carry coupon rates ranging from 12 to 14.5 percent and are set to mature in September 2022, February 2023, October 2023 and January 2024.

The residential-focused developer, which severed ties with auditor PwC last month and has yet to file an annual report for 2021, stated that the March outbreak and ongoing lockdown measures have “lasted much longer than expected” and worsened Jingrui’s liquidity squeeze.

“The operations of the group in the regions subject to the lockdown measures have been severely affected, the disposal of its assets has been delayed, and the progress for the approval of outbound capital from the mainland has also been delayed,” co-chairmen Yan Hao and Chen Xin Ge said in the filing. “Such delays have resulted in a very tight liquidity situation of the group.”

Acceleration Risk

The non-payment of more than $59 million in interest may allow holders of the group’s 12 percent bonds due in 2022 and 12.75 percent bonds due in 2023 to accelerate repayment, Jingrui said, adding that it has yet to receive any notice of acceleration from the holders.

The group is maintaining communication with its creditors and carrying out asset disposals as needed in order to resolve the offshore liquidity issue before the fourth quarter of this year, according to the filing.

Although Jingrui pinpointed the recent outbreak as the root of its latest woes, the developer had signalled trouble as early as February, when it sought an extension on payment of a $190 million bond maturing in March 2022. The company ultimately exchanged the old notes for new ones maturing in 2023.

Moody’s Investors Service reacted to the February announcement of the proposed exchange by cutting Jingrui’s corporate family rating by two notches, to Caa2 from B3, and the company’s senior unsecured rating to Caa3 from Caa1.

“Jingrui’s Caa2 CFR reflects the company’s weak liquidity over the next 12-18 months, and Moody’s expectation that the company will face difficulties in raising new funds from onshore and offshore channels to address its refinancing needs amid tight funding conditions,” the agency said.

Club Adds a Member

Jingrui’s entry into China’s defaulting developer club comes after the group last December closed on a joint acquisition with LaSalle Investment Management of a retail and hotel property in Shanghai’s Hongqiao area, with plans to convert the distressed asset into a multi-family residential project.

Jingrui and the US-based firm purchased the property for RMB 438 million ($68 million) in cash, along with assumption of existing debt, with the Shanghai-based developer holding a 25 percent interest in the asset.

According to unaudited operating results released this month, Jingrui’s contracted sales for the first five months of 2022 totalled RMB 3.8 billion, plunging more than 75 percent from the year-earlier period.

Jingrui announced earlier this month that PricewaterhouseCoopers had resigned as auditor with effect from 31 May, after the two sides were unable to agree on a timetable to complete the audit of the company’s 2021 financial results.

A sticking point was PwC’s view that further clarification was required with respect to certain bank deposits held by Jingrui in the amount of RMB 4.9 billion ($730 million).