A gauge of Chinese high-yield dollar debt fell to the cusp of distress after one of the most closely watched property firms warned it was short of funds to repay a bond due in days, renewing concerns about the health of developers struggling with weak sales and limited refinancing access.
A key unit of Dalian Wanda Group Co. — among the few Chinese real estate conglomerates to stay afloat even as peers succumbed to an industrywide debt crisis in recent years — told some creditors Monday it faces a funding gap of at least $200 million for repayment of a $400 million note that matures July 23. There’s no grace period for the unit, Dalian Wanda Commercial Management Group Co., to pay the principal.
The security retreated 2.4 cents Tuesday to about 69 cents, extending declines after plunging a record 21.8 cents Monday. The slide had spilled over to the broader market for Chinese junk dollar notes Monday, most of which are from builders. The average price of the securities dropped 0.6 cent Monday in their worst day since July 5 to about 70 cents, a level that’s generally considered a threshold for distress. Some of the bonds rebounded Tuesday.
China’s developers are struggling with an unprecedented property debt crisis that has intensified since the default of giant China Evergrande Group in 2021. The volatility in recent days underscores the broader challenges facing the sector, which often rallies briefly on supportive policy steps but then falls back when more repayment woes emerge, fueling investor concerns amid record defaults.
So far, policy measures this year including easing of mortgage rates on first home purchases and a recent revival in the pipeline for state-guaranteed bond sales for private developers have failed to spark any sustained recovery.
That pattern was on full display this week. A Bloomberg index tracking China high-yield dollar bonds’ performance returned 1.86% last week, one of its best weekly returns this year, before the declines Monday ate into that. The average price of the notes had advanced to 70.5 cents Friday before falling back more toward distressed levels Monday.
One of the few survivors in China’s offshore high-yield market, Wanda has so far avoided defaulting on public dollar debt. The developer has not indicated that it would not be able to come up with the funds to meet the dollar bond deadline. And it told the creditors that it’s still raising funds, as well as weighing an alternative, unspecified plan, according to people involved in the private conversations who asked not to be identified.
Investors are closely monitoring the developments given Wanda is seen as a bulwark against even more contagion in the real estate debt market.
China’s worsening property debt crisis, including mounting stress among local government financing vehicles, is complicating policy maker’s efforts to avert a worse economic cooling. Data released Monday showed China’s economy lost momentum in the second quarter, adding to global risks as Beijing hints that any stimulus measures will be targeted rather than broad. Property-investment declines steepened in June, underlining the sector’s worsening downturn as policymakers pledge more support.
--With assistance from Kevin Kingsbury.
