Most New China Developer Bonds Now Trading Below Issue Price

As a credit crunch caused the collapse of a private Chinese real estate developer this week, and following just two weeks after the country’s first commercial bond default, dollar-denominated bonds from the country’s real estate developers are suffering on regional securities markets.

According to a story today from Bloomberg, $6.3 billion of notes sold by Chinese property companies amounting two-thirds of the dollar denominated bonds issued by Chinese developers this year are now trading below their issue price.

Prices on Kaisa Group Holdings’ 2018 debentures dropped to a seven-month low while $600m of notes from Shimao Property due in 2021and sold to investors at par in January were trading at 97.646 cents on the dollar.

Bonds from other developers including Guangzhou R&F Properties and KWG Property Holdings have also fallen in secondary trading.

Slowing Market and Crashing Companies Depressing Bond Market

The drop in demand for debt from Chinese real estate companies follows just days after the collapse of Zhejiang Xingrun Real Estate, as the privately owned Ningbo developer was unable to repay RMB 3.5 billion in debts. Earlier this month, Shanghai Chaori Solar became the first mainland company to default on a commercial bond when it was unable to cover a RMB 89.8 million interest payment to creditors.

Housing prices are also not helping many overstretched developers as growth in average new home prices in China’s 70 biggest cities slowed to 8.7 percent in February, and actual sales have moved into negative territory, both in terms of value and floor area.