China Developer With $567 Million Debt Said to Collapse

[Temperament]

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.

Ah! i agreed to a certain extend but if your assets are wanted and valued
by everyone to a certain value more than your debt then O. K. lah.
i suppose US is operating on something based on this principles. No?
Every bank want to lend to you when they know you have valuable assets but never to a beggar. No?

[BlueKelah]

thanks guys for responding so vividly to my post as you guys know by now, I am quite a big bear on anything China related. Its basically a third world country going through its industrialisation pains as you can see from the severe air, water, land pollution problems.

China will have its "lehman moment" soon enough. Imagine over there the so called "property cooling measures" include raising deposit levels from 60-70% for second homes.. Even 60% previously not enough to cool the property market? those guys must be smoking something stronger than panda brand....

Now they are trying to continue the "boom" and maintain GDP by building more houses for the common people in the SLUMs to "upgrade" them. Where is all that money or credit coming from?

and all those so called chinese "developers" are now overseas everywhere making apartments to replicate what they have done in china using their seemingly limitless cheap funding.. heck they are even trying to build 40 apartment blocks in front of my house back in johor bahru, on RECLAIMED land selling each for close to a million dollars ringgit, who is gonna be able to afford to buy or even rent? These will then be bought and left empty by their own "chinese buyers". Its a billion dollar conspiracy/bubble.

If you watched the latest TOP GEAR episode, they were racing 3 huge lorries on an 8 lane highway in a new empty city in Myanmar. Another example of overbuilding used to boost GDP and economy.

Caveat emptor to all those so called property "investors" buying chinese properties.

Basic rule of gravity, a house of cards will have to fall, someway somehow...

[Boon]

- Chinese real estate developers are at the front end of the default cycle
- Defaults among Chinese real estate developers do happen over the years
- There is no systematic risks
- As long as there is no systematic risks, the government won’t do much because some cases of defaults are inevitable
- The government will be picking and choosing who gets help
- For developers who are cash rich – it does offer them opportunities to pick up some good assets at bargain prices.

[Boon]

These are old problems - cash flow problems - Wharf Holdings ultimately got some good bargain IMO

________________________________________________________________________________________________________________________________________________
Analysis: Greentown woes reveal risks in China property boom

September 27, 2011 – By Soo Ai Peng and Charlie Zhu

HANGZHOU/HONG KONG (Reuters) - China is moving to choke off funding avenues to developers across the country, tightening or eliminating credit options in a bid to slow the rampant property market and bring down prices without sending the broader economy into a crash.

The latest salvo in Beijing's battle to rein in the sector came last week, when the banking regulator ordered trust firms to detail their exposure to debt-laden Greentown <3900.HK>.

The company, based in the popular Chinese tourist city of Hangzhou, specializes in luxury property development around the country.

China has already imposed home-purchase restrictions on about 40 cities as part of nearly two years of efforts to cool prices that have risen far beyond the reach of ordinary Chinese.

But regulator's move last week stoked concerns of a funding squeeze for the sector and sparked a selloff in shares and bonds in many other Hong Kong-listed Chinese developers.

Many of these developers are highly geared and had relied on trust loans as a key source of financing in the absence of other channels of funding.

"The double whammy of slower sales since end-August and higher interest costs has likely sparked increasing concerns on liquidity of Chinese developers, which is likely to further deteriorate if sales slow further," Mirae Asset Research said in a report.

The average interest costs of Hong Kong-listed Chinese developers rose 64 percent year on year in the first half, Mirae said based on the companies it tracks.

TRUST FINANCING

Beijing wants to push developers to lower prices and sell down their inventories, so it is turning the screws on trust financing -- choking off what has been a lifeline for many of the country's smaller developers such as Greentown.

The form of financing, more expensive than ordinary loans, has been booming.

Chinese trusts poured over 210 billion yuan ($32 billion) into the sector in the first half. Total outstanding property trust loans exceeded 600 billion yuan.

The China Banking Regulatory Commission scrutiny of Greentown's lenders highlighted Beijing's determination to bring down housing prices that it views as a threat to social stability and economic growth.

It also raised the risks of investing in what used to be China's best growth story, analysts said.

Indeed, the market may well be at a turning point, with grave consequences for smaller developers around China.

The restrictions on homebuying and the heavy credit clampdown on buyers and developers seem to be showing some impact in major Chinese cities.

Housing inflation has shown signs of peaking, easing a touch in August, with home prices in major cities remaining flat for a second consecutive month.

"The banking regulator has been tightening real-estate trust financing. It should only get tighter," said a senior executive at a Chinese trust company. The executive declined to be identified because he is not authorized to talk to the media.

GREENTOWN WOES

Sky-high housing prices undermine Beijing's goal of making its economic growth more sustainable, making it more reliant on domestic consumption and less on exports.

A more healthy and affordable property sector would unleash real demand and so provide support to dozens of other industries from appliances to furniture.

Therefore Beijing is unwilling to see a meltdown of the sector, which would destabilize its financial system, analysts say. What it hopes to see is a soft landing of the market.

"I don't believe the state will keep adding pressure to the property sector until it collapses," Greentown CEO Shou Biannian told Reuters on Thursday.

Greentown is one of the more stark examples of the crunch.

The company had amassed total debts of 34.6 billion yuan at end-June -- almost 40 percent of it maturing in 12 months -- and 5 billion yuan of its liabilities related to trusts.

Its net gearing ratio of 163 percent, the highest among Hong Kong-listed Chinese developers, resulted from an aggressive, debt-driven expansion in the past few years' heyday of the China property market boom.

It now suffers negative cashflow, Greentown earnings figures show.

At the sales office of Sincere Garden, an upscale residential project developed by Greentown, salespeople in grey uniforms politely show a few prospective buyers a sprawling model of a compound consisting of more than a dozen high-rises.

Outside the fancily decorated sales office, a few trucks rumble in and out of a vast, dusty construction site in the outskirts of Hangzhou, nicknamed heaven on earth for its picturesque West Lake.

"How can we possibly sell a few units in a day when you have government controls and purchase restrictions?" a saleswoman complained to one viewer.

Shou said he had no plans to cut sale prices now, although the company was set to miss its 2011 sales target of 54 billion yuan as it had only completed half of that so far this year.

At Sincere Garden, there have been far fewer buyers since the purchase restrictions kicked in earlier this year, although three quarters of the development slated for completion in 2013 had already been sold, the saleswoman said.

Average selling prices had gone up to 36,000 yuan ($5,636) per square meter, up from 29,000 yuan two years ago when it was launched.

Analysts expect Greentown's woes to spread to other developers. Its shares plunged 17 percent on Thursday alone, hitting a 28 month low.

With the credit tap tightened further and funding costs soaring, Chinese developers, especially smaller, indebted ones, are expected to cut or delay project construction and lower sale prices to stay afloat, bankers and analysts say.

"The cash position of the companies should allow them to sustain for another six months. If worse comes to worse, they can cut construction and then prices," said Jacphanie Cheung, director of Asia Credit Research at Deutsche Bank.

CREDIT CRUNCH

China has banned developers from accessing the domestic stock and bond markets. Domestic banks are also increasingly cautious about lending to developers, especially small ones.

Even for big developers such as China Vanke <000002.SZ> and China Overseas Land <0688.HK>, lending terms are getting tougher, bankers said.

Some banks no longer extend credit unless borrowers provide sufficient collateral. And normally the loan they extend won't exceed 40 percent of the value of collateral a borrower provides.

Chinese developers are virtually shut out of the overseas loan, credit and equity markets as Beijing has banned mainland companies from acting as a debt guarantor for their overseas units, and buying interest in Chinese high-yield dollar bonds has evaporated in light of a deepening European debt crisis.

Chinese developers have raised nearly $9 billion in offshore bonds and $2.39 billion in offshore loans so far this year, nearly all in the first half.

Meanwhile, offshore funding costs have been surging. A typical three-year loan for a medium-size Chinese developer is now quoted as high as 600 basis points (bps) all-in, compared with 400 bps early this year.

The situation is similar in the bond market.

Skyfame Realty (Holdings) Ltd <0059.HK> this month agreed to issue HK$200 million in bonds due 2013 with a 20 percent yield to fund working capital, pay up a shortfall in registered capital of one of its project companies and repay loans.

The yields are much higher compared with earlier this year.

http://www.foxbusiness.com/markets/2011/...erty-boom/

_________________________________________________________________________________________________________________________________________________

Greentown Rises Most on Record After Wharf Deal: Hong Kong Mover

By Bloomberg News Jun 11, 2012

http://www.bloomberg.com/news/2012-06-11...mover.html

[Boon]

China Defaults Sow Property Cash Crunch Concern: Distressed Debt

By Bloomberg News Mar 31, 2014 5:25 PM GMT+0800


The specter of default in China’s trust loans market is deepening the distress of property developers that also borrowed in dollars.

Eighteen companies owing $15.2 billion, from behemoth China Vanke Co. (000002) to junk-rated Glorious Property Holdings Ltd. (845), have “material exposure” in excess of 10 percent to trust financing, a form of non-bank lending that’s helped homebuilders proliferate in China, Moody’s Investors Service said. This year alone, the number of Chinese junk developer bonds whose yields have increased to distressed levels has almost doubled to 19.

Part of China’s $7.5 trillion shadow-banking system, trust financing has been key to fueling the nation’s 10 percent annual growth rate in the past decade by providing easy credit to companies considered too risky by banks. After trust loans to the property, solar, coal and other industries tripled in the past three years to 10.9 trillion yuan ($1.8 trillion), bondholders are becoming increasingly alarmed as the government reins in lending, housing demand cools and the economy slows.

“There’s concern China’s hitting a rough patch and that a few core industries, especially those based on credit such as real estate, may have peaked,” David Tawil, co-founder of the New York-based hedge fund Maglan Capital LP, said in a telephone interview. “The real question is whether Beijing will try to mask the down cycle or allow it to play out publicly.”

Defaults Unavoidable

Cracks are already starting to appear. Closely held Zhejiang Xingrun Real Estate Co. collapsed earlier this month, less than two weeks after Shanghai Chaori Solar Energy Science & Technology Co. defaulted on its debt.

While China Credit Trust Co. was bailed out in January, Premier Li Keqiang has said some defaults may be unavoidable as the government shifts policy to tighten credit.

Home prices have soared 60 percent since the government provided 4 trillion yuan of fiscal stimulus in 2008 to bolster the economy after the financial crisis, prompting companies to borrow heavily to speed construction. Now, as China abstains from providing further stimulus for the economy, thousands of apartment buildings across the country sit empty.

“If onshore defaults increase, it’ll definitely tighten liquidity and raise funding costs,” said Singapore-based Leong Wai Hoong, a high-yield bond manager at Nikko Asset Management Co., which oversees some $161 billion.

Funding Alternative

Trust financing involves the sale of high-yield investment plans to individuals, raising money for companies which may lack access to bank loans. According to Moody’s, it has become a key alternative of funding for land acquisitions by riskier real-estate companies during times they aren’t able to obtain reliable access to bank loans or the bond market.

Hopson Development Holdings Ltd. (754) and Glorious Property, with a combined $1.3 billion of outstanding dollar-denominated bonds, are two which will face “inadequate liquidity” in the next 12 months if financing avenues seize up, Moody’s said.

Hopson’s $300 million of notes due January 2018, which traded at about 100 cents on the dollar at the start of the year, were at 91.47 cents today, according to prices compiled by Bloomberg. That’s pushed yields on the bonds to 12.8 percent, or 11 percentage points above Treasuries, more than the 10 percentage point threshold at which debentures are considered distressed.

Glorious’s $400 million of March 2018 securities fell to 72.08 cents on the dollar from 83.6 cents to yield 24.8 percent.

Hopson Loans

Hopson has about 2 billion yuan of trust loans and remains prudent in its borrowing strategy, Chief Financial Officer Xie Bao Xin said at a media briefing in Hong Kong on March 27. It plans to fully repay the trust loans in 2014, Xie said. Glorious didn’t reply to an e-mail request for comment.

Property developers account for 19 of the 22 junk-rated corporate bonds in China considered distressed as of March 28, according to a Bank of America Merrill Lynch index of high-yield notes from the country’s issuers. On average, investors demanded 7.98 percentage points of extra yield over similar-maturity Treasuries to hold the 105 securities included in the index.

Chinese junk bonds have lost 0.9 percent this year, versus a 2.9 percent gain for U.S. speculative-grade debt.

As a result of the building binge, the average debt ratio among the top 500 developers rose to a five-year high in 2013, the China Real Estate Association said in an e-mailed report March 20. The ratio of cash flow to short-term liabilities -- a measure of the ability to pay debt -- was minus 5.7 percent compared to 15 percent in 2012, according to the report.

Front End

Such leverage will put developers at the front end of the default cycle in a market shakeout, said Lisa Emsbo-Mattingly, the Boston-based director of asset allocation research at Fidelity Investments, which manages about $2 trillion.

While borrowing costs for China’s property developers have surged in the dollar-bond market, it’s unlikely the biggest real-estate companies will default any time soon, Nikko Asset Management’s Leong said.

“Dollar debt issuers are much larger and a lot of them have sold bonds to refinance their onshore loans,” he said. “Will those developers default? Not in the near term.”

Slower new-home price growth is nevertheless adding to the pressure on builders. Prices in first-tier cities such as Beijing and Shanghai grew in February by the slowest since 2012. At least 10 cities have moved to cool the housing market since November, including raising the minimum down payment on purchases. In smaller cities, companies such as Agile Property Holdings Ltd. have cut prices by as much as 20 percent.

Minsky Moment

Some 634 billion yuan of trust loans to developers must be repaid this year, an amount about the same size as Puerto Rico’s economy, Li Ning, a Shanghai-based analyst at Haitong Securities Co., China’s second-largest brokerage, said by telephone on March 26. That’s a 50 percent increase from 2013.

There’s a “high probability” some trust loans to property companies will default this year, according to David Cui, China strategist at Bank of America Corp.

Developers in mainland China or Hong Kong have also accounted for 32 percent of the $68 billion of dollar bonds issued by all Chinese companies last year. Chinese companies have more than $120 billion of notes and dollar loans due this year and next, according to data compiled by Bloomberg.

Since China’s credit crunch in June when money-market rates surged past 12 percent, both Societe Generale SA and Morgan Stanley have said a “Minsky moment” may be approaching, a reference to U.S. economist Hyman Minsky, who argued periods of rising asset values lead to speculative investments on borrowed money, only to end badly.

Chaori Solar missed payment on part of a bond coupon on March 7 in China’s first onshore default. Zhejiang Xingrun’s collapse followed on March 17. China narrowly averted its biggest trust default in at least a decade in January, when China Credit Trust repaid investors in a 3 billion yuan high-yield product after a bailout offer by Industrial & Commercial Bank of China Ltd.

“Many more defaults will definitely come,” said Bank of America’s Cui.

http://www.bloomberg.com/news/2014-03-30...-debt.html

[SpeedingBullet]

Based on the latest (dec 2013) MAS Financial Stability Review, they did mention that our local banks' loans out to China has increased substantially, I don't know if the origination here have strict standards, or it'll be a big problem for the banks here.

Pg 19-21
MAS FSR 2013

[Behappyalways]

《经济半小时》 20140529 来自楼市一线的报道：宁波
http://jingji.cntv.cn/2014/05/29/VIDE140...6199.shtml

[BlueKelah]

《经济半小时》 20140529 来自楼市一线的报道：宁波
http://jingji.cntv.cn/2014/05/29/VIDE140...6199.shtml

Isn't this the one that went under in march zhejiang xinrun ??