China Developer With $567 Million Debt Said to Collapse

[BlueKelah]

A closely held Chinese real estate developer with 3.5 billion yuan ($566.6 million) of debt has collapsed and its largest shareholder was detained, said government officials familiar with the matter.

Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay creditors that include more than 15 banks, with China Construction Bank Corp. (939) holding more than 1 billion yuan of its debt, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.

The collapse of the company, based in the eastern town of Fenghua, adds to concern of strains in the nation’s real estate sector and comes less than two weeks after the first bond default by a Chinese company. Shanghai Chaori Solar Energy Science & Technology Co.’s inability to repay its debt may become China’s own “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, Bank of America Corp. said March 5.

Zhejiang Xingrun’s collapse was reported earlier today by the Chinese-language National Business Daily, which cited an unidentified government official for the news. The report blamed the failure on mismanagement and high costs of private lending, according to the newspaper.
Xingrun Assets

The city of Ningbo has jurisdiction over the town of Fenghua, which is the birthplace of former Chinese nationalist leader Chiang Kai-Shek. Fenghua is in discussions with the banks and Ningbo on how to repay the debt, the people said. They said Zhejiang Xingrun has assets worth 3 billion yuan.

Two calls to the chairman’s office and financial department at Zhejiang Xingrun weren’t answered today. A woman who answered the phone at the Fenghua government’s news office who declined to give her name confirmed the company cannot pay its debt. A Beijing-based press officer at CCB said the bank asked for more information from its local branch about the report and hasn’t heard back.

“We think the default of the developer will alert the banks on escalating risk from developers amid the liquidity tightening,” said Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research. “We maintain our view that banks may revisit loan policy on property and may take a stricter stance on property development loans, particularly for small developers.”
Property Curbs

The property market in smaller Chinese cities faces “true risks of a sharp correction” due to oversupply and investors may have underestimated the risk, Nomura Holdings Inc. economists said in a March 14 report.

Property shares slid to a 16-month low in February after Industrial Bank Co. suspended mezzanine financing for developers, adding to concerns that smaller developers may default on their borrowings amid the government’s property curbs and an economic slowdown.

New home prices in Ningbo rose 7.1 percent in January from a year earlier, according to the National Bureau of Statistics. The city in February recorded the 10th lowest yield on residential investments in the past year among 116 Chinese cities, with negative 1.1 percent, according to a March 13 report by Zhongjin Standard Data Research Ltd., a Hong Kong-based data provider.

http://www.bloomberg.com/news/2014-03-17...llapse.htm
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Like it happened in USA in 2008, will it end with a similar story for China?

[CityFarmer]

Fenghua is a small city, with population of just 480,000, GDP of about RMB 19 billion, per capita of approx RMB 39K. For comparison, Shanghai population is 23 mil, GDP 2160 billion, more than RMB 90K per capita.

Developers in smaller city are having the highest pressure.

Ref: http://en.wikipedia.org/wiki/Fenghua

Ref: http://en.wikipedia.org/wiki/Shanghai

[specuvestor]

This is major because it starts the precedents for property defaults. >50% loans/ trust/ WMP are in properties

Short term pain long term gain in instilling credit discipline. Now a question of Central government execution in containment. And no, I don't think it is a "Lehman Moment" as many liked to tag it.

March 18 (Bloomberg) -- Stocks and bonds issued by Chinese
real estate companies slumped after the collapse of a private
developer added to concern that defaults are starting to mount
as the economy slows and the government reins in lending.
Prices on the dollar bonds sold by Evergrande Real Estate
Group Ltd., the nation’s fourth largest developer by market
value, fell 0.5 cent on the dollar yesterday, sending yields to
the highest since August. Prices on Kaisa Group Holdings Ltd.’s
bonds maturing in 2018 dropped to a seven-month low. Shares of
E-House China Holdings Ltd., the online real estate services
provider, slid 2.6 percent while SouFun Holdings Ltd. retreated
for a seventh day.
Demand for real estate-related assets waned after
government officials familiar with the matter said yesterday
that Zhejiang Xingrun Real Estate Co. doesn’t have enough cash
to repay 3.5 billion yuan ($567 million) of debt. The housing
market in the world’s second-biggest economy is cooling: The
value of home sales fell 5 percent in the first two months of
the year after local governments stepped up measures to curb
rising prices. The 7.5 percent economic expansion targeted by
China this year would be the slowest since 1990.
“Chinese developers are extremely exposed to the easy
credit that is used to finance purchases and investment,” said
Patrick Chovanec, the New York-based chief strategist at
Silvercrest Asset Management Group LLC, which oversees $14.1
billion in assets, by phone. “When credit is reined in even
slightly, it undercuts demand. This is potentially an inflection
point.”

Yields Rise

The collapse comes less than two weeks after Shanghai
Chaori Solar Energy Science & Technology Co. became the first
company to default on its onshore corporate bonds. Calls to the
chairman’s office and financial department at Zhejiang Xingrun
weren’t answered yesterday.
The Bloomberg China-US Equity Index of the most-traded
Chinese stocks in the U.S. climbed for the first time in seven
days yesterday, rising 0.8 percent to 97.16. The iShares China
Large-Cap ETF, the largest Chinese exchange-traded fund in the
U.S., added 0.1 percent to $33.07.
The yield on Evergrade’s bonds due 2015 rose 56 basis
points, or 0.56 percentage point, to 8.6 percent, the highest
since Aug. 26. The bonds are rated at BB- at Standard & Poor’s,
or three levels below investment grade. Yields on Shenzhen-based
Kaisa bonds due in 2018 rose 24 basis points to a seven-month
high of 10.03 percent, Bloomberg data show.

Bankruptcy Risk

Zhejiang Xingrun, based in the eastern town of Fenghua, in
Zhejiang Province, doesn’t have cash to repay creditors that
include more than 15 banks, according to the officials, who
asked not to be named because they weren’t authorized to discuss
the matter. The company’s majority shareholder and his son, its
legal representative, have been detained and face charges of
illegal fundraising, the officials said.
The company is the largest property developer at risk of
bankruptcy in recent years and more companies may run in trouble
as sales decline and funding becomes limited, according to
Nomura Holdings Inc.
At least 10 Chinese cities stepped up measures to cool
local property markets at the end of last year with Shenzhen,
Shanghai and Guangzhou raising the minimum down payments for
second homes to 70 percent from 60 percent.
Chinese property shares slid to a 16-month low in February
after Industrial Bank Co. suspended mezzanine financing for
developers, adding to concerns that smaller developers may
default on their borrowings amid the government’s property curbs
and an economic slowdown.
American depositary receipts of SouFun, China’s biggest
real-estate information website, slipped 0.4 percent to $82.80,
extending its seven-day decline to 15 percent. E-House, based in
Shanghai, sank to $14.08.

[CityFarmer]

This is major because it starts the precedents for property defaults. >50% loans/ trust/ WMP are in properties

Short term pain long term gain in instilling credit discipline. Now a question of Central government execution in containment. And no, I don't think it is a "Lehman Moment" as many liked to tag it.

Yes, I do agree it is not a "Lehman Moment".

Base on the input so far, China authority will let most of them default. May be will save some of them, via the AMC model.

We will likely to see more of them appear in the news headline.

[specuvestor]

Saving the trust but not quoted bonds already pave the way on how Central Govt views it

[Greenrookie]

I find it quite amazing that company with 3 billion assets and close to 3.6 billion debt has problem refinancing.

Is assets questionable or debts more than it seems. Singapore has its fair share of developers with gearing ration above 1

[freedom]

Trust is secured by the underlying assets, what is the bond secured against? A promise to pay? There is nothing for the bonds, but a business behind a trust.

[CityFarmer]

I find it quite amazing that company with 3 billion assets and close to 3.6 billion debt has problem refinancing.

Is assets questionable or debts more than it seems. Singapore has its fair share of developers with gearing ration above 1

It is likely the asset owned already be written-off by the bank, thus refinancing isn't sufficiently mortgaged.

[specuvestor]

In general there are Senior/ Junior, secured/ unsecured, bond covenants, etc to a bond structure, it is not a promissory note or IOU. If you are specifically talking about this Zhejiang Xingrun bond I did not read the details.

I find it quite amazing that company with 3 billion assets and close to 3.6 billion debt has problem refinancing.

Is assets questionable or debts more than it seems. Singapore has its fair share of developers with gearing ration above 1

It's all about cashflow. Asset rich cash poor will not help u in times of stress.

[Temperament]

Will Singapore companies like Capitaland etc.. be affected soon.