Powerlong headquarters in Shanghai
Mainland developer Powerlong has joined the growing list of defaulting Chinese builders after missing a coupon payment on an offshore bond and hiring restructuring advisors, according to a company stock exchange filing on Tuesday.
Having failed to pay $15.9 million in interest on a set of dollar bonds by the 30 October due date, the developer said this week that it had failed to honour that obligation within the 30-day grace period, triggering a default and setting the stage for a debt restructuring.
“The non-payment will result in an event of default under the terms of certain offshore long term interest-bearing bank and other borrowings of the company,” the company said in the filing. “In light of the pressure currently faced by the group, the company is of the view that a holistic solution to all of its existing debt should be explored immediately to secure the sustainable operations of the group for the benefit of all of its stakeholders.”
The company noted that its cash and bank deposits on hand are insufficient to cover its existing and future debt liabilities and it has engaged Haitong International Securities as financial advisor and Sidley Austin as legal advisor to facilitate a dialogue with creditors and seek out a “holistic” solution.
Sales Evaporate
Despite winning bondholder approval to exchange some $435 million worth of its dollar bonds in July, the company has failed to alleviate its liquidity crunch as cash flows from new home sales dry up.
Powerlong chairman Hoi Kin Hong
Powerlong ranked as the 53rd largest developer in China by sales in January through November of 2023 with revenue of RMB 26.4 billion ($3.7 billion), according to local data provider CREIS.
That figure represents a 72 percent decline from the RMB 93.1 billion revenue generated by the company over the same period in 2021.
The company said it had not yet received any acceleration notice for early repayment as of the announcement date, and that it was working towards ensuring timely delivery of its property development projects to secure cash resources for sustainable development.
Bleak Market
The mid-sized developer’s predicament is the latest sign of distress among mainland builders amid a protracted property market slump that has seen many of China’s major developers defaulting on offshore borrowings and repaying creditors with funds raised from asset sales.
The ongoing crisis has unsettled Beijing, with the government reportedly drafting a list of 50 developers eligible for financing support and allowing them to take out unsecured loans for the first time. The government has also prodded banks to step up funding for developers and treat state-owned and private developers more equally when underwriting loans.
The dwindling number of developers yet to default are also under pressure, with the builders exhausting their internally generated cash and facing weakening liquidity buffers.
“Most privately-owned developers in the sample (of 21 non-defaulted listed developers) had a vulnerable liquidity profile, with only one-quarter of them holding sufficient cash to address short-term debt maturities,” ratings agency Fitch said in an October report. “Sluggish contracted sales and multiple credit events at a few nationwide private developers are likely to hinder normalisation of their capital-market funding access.”
On the demand side, homebuyers remained on the sidelines with new home sales continuing to plummet in November despite a raft of recent government stimulus measures. China’s top 100 developers sold RMB 390 billion ($55 billion) worth of new homes in November — a 29.6 percent year-on-year decline — according to CREIS.
Aggregate annual sales of the country’s top developers are expected to plunge 15 percent in 2023, according to China Real Estate Information, while Fitch is projecting a 10 to 15 percent contraction in new home sales this year.
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