October 26, 2021

Record Chinese bond defaults in focus as Modern Land misses deadline

By ellen

HONG KONG (BLOOMBERG) – A Chinese developer of real estate projects that use green technologies has become the latest builder to miss debt payments, just as defaults from the nation’s borrowers on offshore bonds jump to a record. 

Modern Land China, which is based in Beijing and builds energy-saving homes throughout the nation, didn’t repay either the principal or interest on a US$250 million (S$336.8 million)  bond due Monday (Oct 25), according to a filing on Tuesday morning. The company is working with its legal counsel Sidley Austin and expects to engage independent financial advisors soon, the filing said.

Chinese borrowers have defaulted on a record of at least US$8.7 billion of offshore bonds so far this year, with the real estate industry accounting for one-third of that amount. That’s come as authorities clamp down on excessive leverage in the real estate sector amid a crisis at China Evergrande Group that has left many investors around the world on edge. 

Multiple developers have defaulted this month, though Evergrande made a coupon payment last week before a grace period expired. Still, Evergrande’s creditors are bracing for an eventual debt restructuring that could rank among the largest ever in China.

Modern Land last week terminated a proposal to extend the bond’s maturity by three months. Fitch Ratings downgraded Modern Land to C from B following the proposed bond extension, considering it a “distressed debt exchange.”

Credit-rating downgrades of Chinese developers have accelerated further in October, hitting a record high for a second straight month. There were 44 cuts in the sector by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings as of Oct 21, after 34 downgrades for all of September, according to Bloomberg-compiled data.

Ratings reductions surged in the third quarter as China Evergrande Group’s troubles fueled broader debt-related worries. Ongoing downgrades, occurring as developers face heavy operational and refinancing pressure, “will worsen their capability of raising funds,” said Ma Dong, a partner with Chinese bond firm BG Capital Management.