China Developer With $567 Million Debt Said to Collapse

[specuvestor]

This is major because it starts the precedents for property defaults. >50% loans/ trust/ WMP are in properties

Short term pain long term gain in instilling credit discipline. Now a question of Central government execution in containment. And no, I don't think it is a "Lehman Moment" as many liked to tag it.

March 18 (Bloomberg) -- Stocks and bonds issued by Chinese
real estate companies slumped after the collapse of a private
developer added to concern that defaults are starting to mount
as the economy slows and the government reins in lending.
Prices on the dollar bonds sold by Evergrande Real Estate
Group Ltd., the nation’s fourth largest developer by market
value, fell 0.5 cent on the dollar yesterday, sending yields to
the highest since August. Prices on Kaisa Group Holdings Ltd.’s
bonds maturing in 2018 dropped to a seven-month low. Shares of
E-House China Holdings Ltd., the online real estate services
provider, slid 2.6 percent while SouFun Holdings Ltd. retreated
for a seventh day.
Demand for real estate-related assets waned after
government officials familiar with the matter said yesterday
that Zhejiang Xingrun Real Estate Co. doesn’t have enough cash
to repay 3.5 billion yuan ($567 million) of debt. The housing
market in the world’s second-biggest economy is cooling: The
value of home sales fell 5 percent in the first two months of
the year after local governments stepped up measures to curb
rising prices. The 7.5 percent economic expansion targeted by
China this year would be the slowest since 1990.
“Chinese developers are extremely exposed to the easy
credit that is used to finance purchases and investment,” said
Patrick Chovanec, the New York-based chief strategist at
Silvercrest Asset Management Group LLC, which oversees $14.1
billion in assets, by phone. “When credit is reined in even
slightly, it undercuts demand. This is potentially an inflection
point.”

Yields Rise

The collapse comes less than two weeks after Shanghai
Chaori Solar Energy Science & Technology Co. became the first
company to default on its onshore corporate bonds. Calls to the
chairman’s office and financial department at Zhejiang Xingrun
weren’t answered yesterday.
The Bloomberg China-US Equity Index of the most-traded
Chinese stocks in the U.S. climbed for the first time in seven
days yesterday, rising 0.8 percent to 97.16. The iShares China
Large-Cap ETF, the largest Chinese exchange-traded fund in the
U.S., added 0.1 percent to $33.07.
The yield on Evergrade’s bonds due 2015 rose 56 basis
points, or 0.56 percentage point, to 8.6 percent, the highest
since Aug. 26. The bonds are rated at BB- at Standard & Poor’s,
or three levels below investment grade. Yields on Shenzhen-based
Kaisa bonds due in 2018 rose 24 basis points to a seven-month
high of 10.03 percent, Bloomberg data show.

Bankruptcy Risk

Zhejiang Xingrun, based in the eastern town of Fenghua, in
Zhejiang Province, doesn’t have cash to repay creditors that
include more than 15 banks, according to the officials, who
asked not to be named because they weren’t authorized to discuss
the matter. The company’s majority shareholder and his son, its
legal representative, have been detained and face charges of
illegal fundraising, the officials said.
The company is the largest property developer at risk of
bankruptcy in recent years and more companies may run in trouble
as sales decline and funding becomes limited, according to
Nomura Holdings Inc.
At least 10 Chinese cities stepped up measures to cool
local property markets at the end of last year with Shenzhen,
Shanghai and Guangzhou raising the minimum down payments for
second homes to 70 percent from 60 percent.
Chinese property shares slid to a 16-month low in February
after Industrial Bank Co. suspended mezzanine financing for
developers, adding to concerns that smaller developers may
default on their borrowings amid the government’s property curbs
and an economic slowdown.
American depositary receipts of SouFun, China’s biggest
real-estate information website, slipped 0.4 percent to $82.80,
extending its seven-day decline to 15 percent. E-House, based in
Shanghai, sank to $14.08.