Developer China South City’s woes test state
BEIJING: A Chinese property developer that’s partially owned by a state-run firm has issued its strongest warning yet over a bond default, a development that likely will heighten investor scrutiny on government support of the beleaguered sector.

China South City Holdings Ltd said in a Feb 9 filing that it doesn’t expect to make a principal installment payment due on a dollar bond.

The developer also said it doesn’t expect to pay interest due Feb 12 on another dollar note.

Both could lead to an event of default, it said.

The company’s dollar-note management will be studied by investors who are keen on assessing how state-linked developers fare in bond obligations compared to their private counterparts.

China South City, which was among the first in the property sector to receive a state bailout, has struggled to stay afloat despite winning bondholders’ concessions and having terms in its bonds that prioritise company solvency.

It has more notes coming due this year, including one in two months.

“We have been actively seeking to obtain financing and working on generating sufficient cash flow to meet our financial commitments,” the company said.

It’s also considering revising terms, issuing new bonds for exchange or restructuring, it said.

In January 2022, at the height of China’s property crisis, China South City first asked to delay the maturity dates of two dollar notes by four months and six months, respectively.

Roughly seven months later, the company also sought to lower the interest rates of five bonds, extend maturity dates to 2024, and make installments on bond principals.

That debt overhaul could come back to pose more troubles for China South City this year.

Apart from the payments it warned about in its latest filing, the company faces a bond – one that was renegotiated in 2022 – that is now set to mature in April, according to filings.

It also has a principal installment due on another bond in the same month.

The developer asked to revise bond terms for the fourth time in December.

It only won over holders of one dollar bond this time, with its maturity date pushing to 2027 and the interest rate cut in half.

China South City has been tussling with bondholders despite its bonds’ keepwell clauses provided by its partial owner – the Shenzhen SEZ Construction and Development Group Co, a subsidiary of the city’s local state asset regulator.

Keepwell provisions are an agreement that entails a commitment to maintain an issuer’s solvency, but stop short of a payment guarantee from the parent company. — Bloomberg
Corporate News,ChinaSouthCity,ChinaPropertyCrisis,BondDefault,InvestorScrutiny,StateSupport
A Chinese property developer that’s partially owned by a state-run firm has issued its strongest warning yet over a bond default, a development that likely will heighten investor scrutiny on government support of the beleaguered sector.