Chinese developers fall as debt worries mount

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Shares in Chinese developers fell sharply in Hong Kong as investors weighed news of bond trading halts and concerns mounted that another company in the debt-laden sector could seek repayment extensions.

Shimao Group Holdings Ltd.
813,
-20.62%
led the declines, falling 15% in afternoon trading to extend three-day losses to 29%. China’s most indebted developer, China Evergrande Group
3333,
-8.14%,
slid 8.1%, while Agile Group Holdings Ltd.
3383,
-11.25%
fell 9.1%.

China Aoyuan Group Ltd.
3883,
-9.25%
dropped 8.7% after a creditor, China Shandong Hi-Speed Financial Group Ltd., said the group had defaulted on a US$100 million bond.

The Hang Seng Mainland Properties Index , which tracks property developers and services companies, fell 7.0%, on course for its lowest close since late September.

Shimao was hit particularly hard by the downturn. Trading in three of the group’s onshore bonds was halted when prices slumped more than 20%, according to data provider Wind. A day earlier, trading in eight of its onshore bonds was temporarily halted due to volatility, according to notices on the Shanghai stock exchange, where the bonds are listed.

Data provider LevFin Insights in a newsletter highlighted talk among investors that Shimao is speaking with creditors about extending maturities “on certain domestic trust products and loans.” Shimao hasn’t commented on the matter.

To some analysts, the selloffs look overdone given the lack of clear information.

“There is no clear newsflow that Shimao is facing an imminent liquidity crunch, and the company has responded that it’s looking into market rumors” that it blamed for Monday’s selloff of bonds, CMC Markets analyst Kelvin Wong said.

Property services companies also slumped in Tuesday trading in the wake of a deal that Shimao’s property management arm struck with its parent.

Shimao Services Holdings Ltd. plunged more than 30% to a record low after saying late Monday that it will acquire a property-management services business from its parent for a consideration of 1.65 billion yuan ($259.1 million), 95% of which will be paid within 20 business days. The deal is likely to heighten concerns about the group’s liquidity.

“Investor jitters that caused the sell-down in Shimao Services may not abate so soon,” brokerage CGS-CIMB said in a research note.

Other property services peers also dropped, with Evergrande Property Services Group shedding 13% and Sunac Services Holdings Ltd. falling 17%.

The sector’s recent slump comes as more developers head toward defaults. Last week, Fitch Ratings said that Evergrande and another big developer, Kaisa Group Holdings Ltd., had defaulted on debt following missed U.S. dollar bond payments.

Write to Yongchang Chin at [email protected] and Clarence Leong at [email protected]

source

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