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China Property: Taming the Typhoon
Sandra Chow, CFA – Co-Head of Asia-Pacific Research
Nicholas Chen – Analyst - Chinese Corporates
Nicole Chua – Analyst - Chinese Corporates
EXECUTIVE SUMMARY
- “Highly volatile” – this term has long been associated with China property bonds, but even seasoned market participants were blown away by the lurches in bond prices last week. A swirl of negative headlines has emerged since 17 July, hitting developers including Dalian Wanda Commercial Management (DWCM), Sino-Ocean Group (SOG), Shui On Land (SOL), and Greenland Holdings.
- Dalian Wanda Commercial Management managed to avert a default at the eleventh hour thanks to proceeds generated from the sale of its parent company’s stake in its film unit. However, the company is not out of the woods yet owing to the overhang from the IPO (or lack thereof) of its unit, Zhuhai Wanda Commercial Management (ZWCM). We think that investor sentiment on the company will likely remain nervous until the ZWCM IPO overhang is resolved.
- Sino-Ocean Group said it was facing “significant uncertainty” in the repayment of its RMB 2 bn 4% Aug-23 onshore bond, and has proposed to repay the onshore note in installments over a year. SOG has also yet to make around $7.02 mn in coupon payment on its $520 mn 7.2% Jan-25 notes that came due on 13 July, with the media reporting that the developer had engaged Haitong International Securities to explore options for its offshore debt. Notably, SOG’s state-owned shareholder China Life has remained silent despite these headlines, implying that its support is unlikely to be forthcoming.
- Shui On Land reportedly engaged Morrow Sodali to identify bondholders of two of its $ bonds. The company reportedly stated that the move was part of its investor relations engagement exercise, though that did not reassure the market, which suspected the exercise could be a precursor to a restructuring.
- Greenland Holdings temporarily joined the ranks of defaulted developers after it was unable to make 5% principal repayment on its Jun-24 $ notes that came due on 25 June. However, the developer was reported to have wired funds for the overdue principal repayment earlier this afternoon (25 July).
- Country Garden’s $ bonds plunged by 9-25 points between 17-24 July and its onshore bonds were halted from trading last Friday after dropping by over 20%. This came despite the company’s successful refinancing of its $1 bn syndicated loan and repayment of an onshore puttable bond.
- Perhaps in an implicit acknowledgment of the turmoil, more supportive policy rhetoric has emerged from the Chinese regulators. Policymakers are reportedly weighing the removal of home purchase restrictions in the bigger cities, and the phrase “houses are for living in, not for speculation” was omitted from the Politburo readout yesterday (24 July). Despite the continued positive policy support rhetoric, we think that transmission and execution of the support remain the biggest challenges. Home prices across the various city tiers remain under pressure and could continue to weigh on homebuyer and investor sentiment.
SECTOR STILL NOT FOR THE FAINT-HEARTED
Dalian Wanda Commercial Management (DWCM) – Eleventh Hour Bond Repayment
DWCM had a particularly turbulent week, plagued by concerns that it would miss its $400 mn 6.875% bond repayment due on 23 July. DWCM’s $ bonds fell 20-34 cents from 14-19 July. According to one of the credit rating agencies, the company could have been facing a funding gap due to offshore cash had been pledged for onshore borrowing. That said, DWCM’s $ bonds rebounded 5-28 cents from 19 to 20 July amid news reports that the company was expected to complete an asset disposal with the proceeds to be used for the Jul-23 $ note repayment.
At the eleventh hour, DWCM managed to avert a default thanks to proceeds generated from an asset disposal. DWCM’s parent, Dalian Wanda Group (DWG) sold 49% of Beijing Wanda Investment Co Ltd (via its wholly owned subsidiary Beijing Wanda Cultural Industry Group) to China Ruyi Holdings Ltd (via its wholly owned subsidiary Shanghai Ruyi Television Production) for RMB 2.26 bn. According to the filing on the asset sale, Beijing Wanda Investment is principally engaged in investment holding, while Beijing Wanda Cultural Industry Group is principally engaged in film exhibition and production, large-scale stage performance, film technology entertainment, cultural entertainment chain, journal and media and other businesses. Meanwhile, Shanghai Ruyi (wholly owned by China Ruyi Holdings Ltd) is principally engaged in radio television programme production and operation and film distribution.
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