China Developer Bonds on Cusp of Distress After Wanda Surprise

Mounting signs of financial stress at Chinese developers are again roiling the nation’s dollar-bond market and adding to concerns about the health of the world’s second-largest economy.

(Bloomberg) — Mounting signs of financial stress at Chinese developers are again roiling the nation’s dollar-bond market and adding to concerns about the health of the world’s second-largest economy.

Shui On Land Ltd. became the market’s latest worry on Tuesday, with its notes plunging by record amounts of more than 10 cents as the firm seeks to identify bondholders — a step that sometimes foreshadows payment delays. State-backed peer Sino-Ocean Group Holding Ltd. halted trading in a local note that matures in two weeks, flagging “significant” uncertainty in repaying that security. 

The moves came just a day after a key unit of Dalian Wanda Group Co. warned creditors of a funding shortfall for a bond that comes due July 23.

All three firms had until recently been viewed by investors as among the few developers capable of weathering an industrywide debt crisis that has weighed on China’s economy for more than two years. The bond-price volatility in recent days underscores the broader challenges facing the property sector, which often rallies briefly on supportive policy steps but then falls back when more repayment woes emerge. 

The maturing Wanda note plunged a record 22 cents after creditors were told there’s a funding gap of at least $200 million for repaying it. The bond swung Tuesday, initially rebounding 11 cents before falling as much as 13 cents from Monday’s closing level. It was down less than 3 cents at 69 cents as of 5:30 p.m. in Hong Kong, according to prices compiled by Bloomberg.

Declines in Wanda spilled over to the broader market for Chinese junk dollar notes, most of which are from builders. The market weakened further Tuesday, with average prices around 70 cents — generally considered a threshold for distress. Shares of developers also weakened, with a Bloomberg Intelligence gauge falling 3% to its lowest level since June 1.

China’s developers are struggling with an unprecedented property debt crisis that intensified after the December 2021 default of giant China Evergrande Group. A record surge of delinquencies followed. 

“To be able to have a bond coming up and not having the cash on hand tells you there is still inherent tightness in the sector,” Wilfred Wee, portfolio manager at Ninety One Singapore Pte, said in an interview with Bloomberg TV. “Wanda, being one of the bigger names, you would expect them to have the resources.”

The drop in property shares Tuesday followed renewed concerns over the industry’s profitability after Evergrande reported combined losses of more than $81 billion over two years. Sino-Ocean and investment-grade builder Longfor Group Holdings Ltd. were among the biggest decliners.

Sino-Ocean has been among the main pain points in recent months. The firm, which had long avoided repayment issues that hit some fellow government-linked peers, has been increasingly embroiled in distress. That was highlighted by this week’s disclosure that trading of the company’s 2 billion yuan ($279 million) note due Aug. 2 was suspended because of repayment uncertainty. Sino-Ocean shares fell 10% Tuesday to a fresh record low in Hong Kong.

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 1.9% last week, one of its best weekly performances this year, before the declines Monday ate into that. The average price of the notes had advanced to 72.4 cents last month before a pair of defaults hit the market. 

One of the few survivors in China’s offshore high-yield market, Wanda has so far avoided defaulting on public dollar debt. The developer hasn’t indicated that it wouldn’t be able to come up with the money 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.

If Wanda were to not repay the July 23 note, it would “be another nail in the coffin for Chinese high-yield property bonds,” said Charles Macgregor, head of Asia at Lucror Analytics. He said very few investors are willing to increase holdings, exemplified by most of major builder Country Garden Holdings Co.’s dollar notes now trading in the 20s and 30s.

Investors are closely monitoring the developments given Wanda is seen as a bulwark against even more contagion.

Developments so far haven’t been encouraging. A key unit, Dalian Wanda Commercial Management Group Co., has been downgraded by the three major international ratings firms this month. The latest was S&P Global Ratings, which issued a two-notch cut to B+ and kept the company on watch for possible further downgrade. 

China’s property debt crisis has widened to include mounting stress among local government financing vehicles. That’s all complicating policymakers’ efforts to avert the economy from slowing further. 

Data released Monday showed fading 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 Dorothy Ma and John Cheng.

More stories like this are available on

©2023 Bloomberg L.P.