China’s Sinic Holdings Warns of Second $250M Default in 10 Weeks

Sinic Holdings is staring at the prospect of a second $250 million default on offshore debt since mid-October, with the developer, which ranked as China’s 35th largest in 2020 by contracted sales, saying Wednesday that payments on a set of bonds coming due in January are “not expected to be made”.

Shanghai-based Sinic anticipates that it will lack the financial resources to repay the $250 million in principal and a final interest installment on its 8.5 percent senior unsecured notes due on 24 January, the developer said in a filing with the Hong Kong stock exchange.

As a result of the expected non-payment and the consequent triggering of cross defaults, all of Sinic’s public bonds “may also become immediately due and payable if the holders choose to accelerate in accordance with the terms and conditions” of the bonds, the 11-year-old company said.

The Wednesday announcement came about two months after Sinic defaulted on $250 million in dollar-denominated senior notes issued in October 2020, with that turn of events prompting both Fitch Ratings and S&P Global Ratings to slash the company’s credit rating to “selective default”, and the company having not announced any resolution of the default since that time. Trading in Sinic’s HKEX-listed shares had been halted on 20 September after their price plunged 87 percent in that day’s session.

Red Flags Fly

While not a delinquent on the same scale as fellow defaulters China Evergrande and Kaisa Holdings, Sinic stirred concern on 18 September when it announced that certain subsidiaries had missed interest payments on onshore financing arrangements and enforcement action was being taken by one of its offshore creditors.

Sinic has $694 million in dollar bonds outstanding, according to data compiled by Bloomberg, compared with Kaisa’s $11.8 billion and Evergrande’s $19.2 billion.

Kaisa and mid-sized developer Fantasia Holdings, which announced a surprise $205 million default in early October, have both entered into debt restructuring talks under the guidance of US firm Houlihan Lokey. Fantasia revealed this week that creditors had extended the repayment schedule for a RMB 949 million ($149 million) onshore bond maturing this year until 2023.

Evergrande earlier this month set up a “risk management committee” featuring officials from the Guangdong provincial government and mainland state-owned enterprises in a bid to reorganise its own towering offshore debt pile. Evergrande chairman Xu Jiayin issued a brief statement Wednesday saying the risk management panel was utilising extensive resources and would actively engage with the group’s creditors.

Sinic on Wednesday offered no guidance other than to say that the group’s 24 January bonds would be de-listed from the Hong Kong exchange at the maturity date and that trading of Sinic’s shares and debt securities on the exchange would remain suspended until further notice.

Year of Reckoning

With unpaid offshore debt snowballing and China’s government eager to contain the fallout, 2022 is shaping up as another eventful year for mainland property firms.

After owing $10.2 billion on maturing dollar-denominated bonds in the current quarter, Chinese developers face $19.8 billion coming due in the first quarter of the new year and $18.5 billion in the second, CNBC reported Wednesday, citing estimates by Nomura analysts Ting Lu and Jing Wang.

Including onshore bonds brings the total amount of notes maturing to RMB 191 billion in the current quarter, RMB 210 billion in 2022’s first quarter and RMB 209 billion in the second quarter, the analysts said.

“However, in view of potential RMB depreciation pressures and surging offshore funding costs amid rising credit defaults, we believe the repayment pressure for developers in the offshore bond markets could be even higher,” they said, adding that about RMB 1.1 trillion in deferred wages for construction workers is also set to come due before the Lunar New Year starts at the end of January.