A traffic cop in Ordos waits for some motorists to whistle at
One of China’s most famous ghost cities could churn out a new kind of horror this week after a real estate developer based in the Inner Mongolian city of Ordos revealed last week that it is struggling to repay bonds due on December 17th.
Ordos City Huayan Investment Group is said to have admitted that its ability to meet its financial obligations became uncertain after bondholders opted for early redemption of a 2018 bond recently. The developer needs to repay its bondholders RMB 1.14 billion ($176.7 million) on RMB 1.2 billion ($186 million) in securities that it sold in 2012 to build a 232,514 square metre commercial complex in this city of around 600,000 people.
While the bonds issued by Ordos City are guaranteed by a local government finance vehicle, that body is also said to be facing financial challenges. The developer itself had cash on hand equivalent to less than 10 percent of its short-term debt as of June 30th.
Bondholders Call for Early Redemption
Ordos features a futuristic museum, but not so many people.
The bond crisis for Ordos City was triggered when bondholders opted to redeem the bonds early on December 17th, said a report on Bloomberg, citing a local finance website. The company has been flagged as at a high risk of default since early this year due to its weak finances, and that risk appeared magnified after Ordos City issued its mid-year financials.
The developer, which is headed by a former livestock researcher originally borrowed the funds to build a complex in the city’s downtown area that would incorporate a shopping centre, furniture and electronics stores and a supermarket.
Ordos, a coal-mining centre which has boomed along with China’s growing demand for energy, has long been identified as having one of the nation’s biggest property bubbles. The fifteen-year-old planned community has been featured in western television programs and newspapers as among the most notorious cases of overbuilding in China. The housing market became so weak this year officials in the city’s Dongsheng district were began buying up unsold homes to clear stock from the market, according to published accounts.
Local Government Also Strapped for Cash
“It’s uncertain if the guarantor can bail out Ordos City Huayan’s bond,” Zhang Chao, a bond analyst at China Investment Securities was quoted as saying by Bloomberg. The Shenzhen-based advisor pointed out that, “The LGFV itself is facing operation problems.”
Even before this year began Ordos City, which also develops residential property was already in trouble financially, with over RMB 170 million of overdue bank loans as of the end of December, after losing RMB 726 million last year.
The oversupply of homes in the Inner Mongolian city has only been exacerbated by the slowdown in demand for coal as China’s steel industry declines, robbing the local economy of a primary source of revenue.
