A Chinese property firm's debt issue struggles despite state-backing -sources - CNA

HONG KONG : Chinese property developer CIFI Holdings Group Co Ltd is having difficulty finding domestic buyers for new debt despite state-backing for the issue, sources said, underscoring investor doubts about the sector's recovery prospects.

Shanghai-based CIFI, which has previously defaulted on offshore debt, started accepting investor interest for a bond issue of up to 2 billion yuan ($289 million) on Jan. 13, according to a term sheet seen by Reuters.

As much as three-quarters of that debt is guaranteed by state-owned China Bond Insurance Corp, a separate credit enhancement letter shows.

Despite that, the deal has yet to be completed as it has not been able to garner sufficient interest from local debt buyers who would typically include major banks and asset managers, four people with knowledge of the matter said.

By comparison, at least three other private sector Chinese property developers including Agile Group Holdings, successfully issued onshore debt in January. The time taken from bond registration to issuance typically took a month.

Efforts are still in train to complete CIFI's sale, said the people who declined to be identified as they were not authorised to speak to media.

A representative for CIFI declined to comment. China Bond Insurance Corp did not immediately respond to a request for comment.

China's property sector has since mid-2021 been grappling with a severe liquidity crisis - initially triggered by government moves to rein in ballooning debt - with many developers defaulting on or delaying debt payments as they struggle to sell apartments and raise funds.

While Beijing has since rolled out supportive measures for the sector which have helped dollar bonds for Chinese developers rally since late November, CIFI's difficulties in raising fresh capital via debt issuance highlight investor scepticism that the sector will see a near-term recovery in sales amid slow economic growth.

Only the strongest players are likely to tempt investors, analysts said.

"People are taking a reality check and...(are) realising that for the distressed guys, it's still going to be very difficult," said Sandra Chow, co-head of Asia-Pacific research at CreditSights.

One of the sources, an official at a Chinese state bank, said his firm had no plans to buy bonds from developers that have defaulted even if the debt has state guarantees, unless they were told by regulators they would be protected if the developer goes under.

CIFI, China's 18th largest property developer by sales, suspended payments on all of its offshore debt in November after it failed to reach an agreement with creditors who are owed a combined $414 million.

It said earlier this month that there had been no delays or defaults with regard to its onshore debt payments.

Around half of the 30-odd Chinese developers listed in Hong Kong have defaulted on or delayed bond payments since late 2021 and industry sources have said they are struggling to gain access to new funds. Even developers that have not defaulted are finding it hard to procure funds, the sources added.

Repayment pressure on small private developers without defaults is also unlikely to ease, "as most have insufficient high-quality unpledged assets to secure additional bank loans or state guarantees", Fitch Ratings said in a report on Thursday.

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