Chinese developer Zhenro defaults for first time after missing bond payments

HONG KONG (BLOOMBERG) – Zhenro Properties Group defaulted for the first time after the debt-laden Chinese developer mentioned it was unable to pay curiosity on two US greenback bonds earlier than a grace interval ended on Saturday (April 9).

The builder, which in February requested holders of about US$1 billion (S$1.36 billion) of bonds set to mature this 12 months for extra time to repay, mentioned in a Hong Kong inventory alternate submitting on Sunday that it didn’t pay a mixed US$20.4 million of curiosity on two greenback bonds. That has resulted in occasions of default, in response to the corporate. 

Zhenro additionally mentioned it won’t have the ability to pay a mixed US$32.6 million of curiosity due on three different greenback bonds earlier than grace intervals finish between April 10 and May 14. Failure to satisfy the obligations would additionally represent occasions of default, the corporate mentioned. However, the agency mentioned it intends to pay the due curiosity on all 5 notes by May 31.

The missed payments are a reminder of the fragility of the Chinese property sector, which is grappling with a money crunch and gross sales droop following a authorities crackdown on extreme leverage. Shares of Chinese builders fell on Monday morning, curbing a three-week rally fuelled by optimism that policymakers could also be getting ready steps to assist the trade. 

Prices on Zhenro’s greenback bonds plunged in February after it turned certainly one of China’s property companies to flag misery amid the money squeeze. Its 7.1 per cent word due in 2024 was indicated at about 13 cents on the greenback on Monday, Bloomberg-compiled costs present.

Shares of Zhenro tumbled 10 per cent as at 11.26am in Hong Kong. A Bloomberg Intelligence gauge of Chinese developer shares dropped 3.8 per cent, paring positive aspects from a mid-March low to 40 per cent.

Covid-19 outbreaks in main Chinese cities danger prolonging the ache for builders, which have seen residence gross sales drop since July. In its assertion, Zhenro mentioned some operations have been halted in latest weeks due to Covid-19-related lockdowns in Shanghai, whereas gross sales and asset-disposal progress has been delayed.

“This is definitely not helpful for the property sector as we just saw signs of a green-shoots recovery for March sales month over month,” mentioned Mr Andrew Chan, a Bloomberg Intelligence analyst. Other builders might also see a slowing of asset disposals, which might additional damage liquidity, he added.

Founded by businessman Ou Zongrong, Zhenro is amongst builders with origins in Fujian province whose fortunes have turned for the more severe throughout China’s crackdown on leverage. 

Zhenro in January mentioned it deliberate to redeem a perpetual bond and boasted that certainly one of its items had secured a 9.14 billion yuan (S$2 billion) credit score line from state-owned Bank of China. The agency’s short-dated bonds have been buying and selling close to 80 cents on the greenback on the time.

The developer disclosed final month it obtained ample bond holder assist for a proposed bond alternate and waiver of default claims because it labored to navigate the credit score stress in China’s property sector. Fitch Ratings downgraded Zhenro to restricted default following the swap.

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