Chinese Developer's $4.6 Billion in Offshore Debt Is in Doubt After Default
By Xie Yu and Frances Yoon
A developer of industrial parks joined the ranks of Chinese
companies defaulting on international borrowings, with its failure
to repay a maturing bond casting doubt over the entirety of its
$4.6 billion in dollar-based debt.
The debt difficulties at China Fortune Land Development Co.
follow a series of defaults by other sizable Chinese groups such as
Tsinghua Unigroup Co., a player in the country's push for
self-reliance in semiconductors, and state-owned commodity trader
Tewoo Group Co.
While eager to support growth and avoid market turmoil, Chinese
authorities have grown more tolerant of defaults in recent years,
both by private companies and state-backed ones, as they try to
erode market assumptions that investors will always be made
China Fortune Land didn't repay holders of a $530 million note
due Sunday, prompting Fitch Ratings to downgrade it to a
"restricted default" rating Tuesday morning Hong Kong time. The
company has $9.8 billion of bonds outstanding, including $4.6
billion of offshore bonds, according to a February note from credit
analysts at Goldman Sachs.
Late last week, China Fortune Land said it needed time to fix a
short-term cash shortage, adding that it aimed to seek a
"consensual resolution" with offshore bondholders and to treat
domestic and international creditors fairly and reasonably. The
company said it had missed payments on the equivalent of $1.7
billion of onshore loans and offshore bonds.
China Fortune Land's bonds have been trading at deeply
distressed levels for weeks, but analysts said the default was
"This shows that the government is dead serious about letting
weaker companies default," said Owen Gallimore, head of credit
strategy at ANZ. "This is a problem for the wider market because if
you exclude blue-chip state-owned enterprises and financials, it's
all about implicit support."
Mr. Gallimore said China Fortune Land would be the biggest
international defaulter on record from China.
Fitch didn't say whether the default on maturing debt would
trigger cross-default on the company's other international bonds.
It also withdrew its rating, saying China Fortune Land would no
longer share the information needed for it to continue assessing
the group's creditworthiness.
The company didn't respond to a request for comment.
Chuanyi Zhou, a credit analyst at research firm Lucror
Analytics, said the company's ties to local governments, for which
it has built a series of developments, had led some market
participants to consider it similar to a local-government financing
vehicle, or LGFV. "It is a big deal for investors that even a
company like that did not get a bailout," she said.
Investors have focused on the risks posed by property
developers, who make up a big part of the Chinese offshore bond
market. Many are heavily indebted, and the sector is coming under
greater regulatory pressure. Banks are told to cap property
lending, and a system of "three red lines, " widely reported in
local media, essentially requires the weakest players to cut debt.
Some cities have also imposed restrictions to dampen housing-market
China Fortune Land isn't a typical residential developer. It was
founded in 1998 with roots in Hebei, the province surrounding
Beijing, with a focus was on building industrial parks for local
authorities. But it has since branched out into home-building,
often on sites adjacent to its industrial areas--a problem given
recent curbs on new home sales in Hebei and neighboring
In a research report last month, Moody's Investors Service
highlighted China Fortune Land's rapid expansion and its use of
"public-private partnerships" as contributing to its high debts.
The company has to wait a long time to collect cash from local
governments for the parks it has built, the rating company
China Fortune Land's fall from grace has been rapid. As recently
as September, it was able to issue $330 million of bonds due in
2022, paying an 8.75% coupon. On Monday, these bonds were quoted at
38 cents on the dollar, according to FactSet.
The company's Shanghai-listed stock has tumbled 48% in the past
three months, according to FactSet. Its biggest shareholders are
Chairman Wang Wenxue and Ping An Insurance Group Co., one of
China's biggest insurers.
Write to Xie Yu at Yu.Xie@wsj.com and Frances Yoon at
(END) Dow Jones Newswires
March 02, 2021 05:44 ET (10:44 GMT)
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