China property bond plunge ensnares investment-grade giant Vanke

DOLLAR bonds of Chinese developers fell across the board on Tuesday (Jul 12), with stress spreading from junk-rated names to investment-grade peers including China Vanke amid renewed concerns about more Covid lockdowns in the country.

Notes from Vanke, the country’s second-largest builder by contracted sales fell as much as 5 cents on the dollar, according to prices compiled by Bloomberg, on track for their biggest declines since March 2020. Investment-grade dollar bonds from peers Longfor Group Holdings and Sino-Ocean Group Holding were also poised to set record lows. Declines in high-yield notes were paced by Country Garden Holdings, China’s largest developer. 

The selloff occurred as a Covid-case spike in Shanghai and other parts of China sparks fears that authorities will re-impose strict control measures which may bring an already-struggling economy to its knees. The country’s real estate sector suffered enormously from lockdowns earlier this year, with slumping home sales making life even harder for cash-strapped builders.

The selloff is being fuelled by thin market liquidity, according to Iris Chen, credit desk analyst with Nomura International Hong Kong. “There is one-way selling but no buying interest on back of weak market confidence in the property sector, and there seems to be no specific near-term upside catalyst that people are expecting,” she said. 

A Bloomberg index shows that Chinese junk dollar bonds, a market dominated by developers, haven’t had a daily gain in more than five weeks. BLOOMBERG