[HONG KONG] The selloff in China's stressed property developers resumed on Thursday (Nov 4), amid signs of contagion spreading to the onshore market.

China's junk-rated dollar bonds fell after rising on Wednesday to snap a nine-day losing streak. Shimao Group Holdings' 4.75 per cent dollar bond due 2022 was poised for its biggest drop on record while Kaisa Group Holdings's bonds also slumped. Trading was halted in two yuan bonds after they plunged.

Spiking borrowing costs are making it all but impossible for developers to refinance debt, while property market curbs are weighing on home sales. At least four property firms defaulted last month and others sought to delay near-term bond payments. Credit assessors are downgrading the industry's companies at the fastest pace on record.

The deepening losses have prompted some developers to seek to reassure bondholders through early repayments. Logan Group this week offered to repay a dollar bond due Jan 3, while Zhenro Properties Group also said it would redeem its 5.95 per cent dollar note ahead of schedule.

A looming deadline for upcoming payments may add further strain on the market. China Evergrande Group unit Scenery Journey has US$82.5 million in coupons on two dollar bonds coming due this Saturday (Nov 6).

The following Wednesday (Nov 10), the grace period expires for overdue bond-interest payments owed by Evergrande.

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Fitch Ratings cut its rating on China Aoyuan Group by two notches to B+, citing the company's lack of funding access, "large" maturities and "high" leverage.

KAISA SHARES SINK TO RECORD, BONDS SLUMP

Investor concern over Kaisa flared again with its shares and offshore notes slumping. The stock dropped as much as 14 per cent to a record low while its dollar bonds declined as much 5 cents on the dollar, according to credit traders.

EVERGRANDE AUTO UNIT SAID TO SELL PROTEAN

Evergrande's automotive unit is nearing a sale of U.K. startup Protean Electric to e-mobility company Bedeo, people with knowledge of the matter said. The divestment by China Evergrande New Energy Vehicle Group could be announced as soon as Thursday, according to the people, who asked not to be identified because the information is private. Evergrande bought Protean in 2019 for US$58 million.

MORTGAGES PLEDGED FOR LOAN

An Evergrande financing company pledged mortgages it provided to about 100 flats in a Hong Kong residential project as collateral for a loan, HK01 reported. Apartment owners' combined mortgages in the Evergrande project totaled as much as HK$400 million (S$69.4 million), according to the report, which didn't give the size of the loan Evergrande received. Some of the mortgages were pledged in June 2020, it said.

40 PER CENT DIVIDEND YIELD AWAITS THE BRAVE

China's stressed property developers may be strapped for cash but some of them are still projected to pay dividends for this year. China Aoyuan has an estimated 12-month dividend yield of about 40 per cent, among the highest ratios of the 739 members of the MSCI China Index, Bloomberg dividend forecasts show. The stock of another stressed real estate firm, Guangzhou R&F Properties, yields an expected 19 per cent. Sunac China Holdings Ltd. yields 14 per cent.

Junk-rated Chinese debt was one of the most profitable trades in global credit for nearly a decade. Now such bonds are sliding from boom to bust in spectacular fashion.

A developer-packed index of the country's junk-rated dollar bonds has lost about 26 per cent since the end of May, the steepest decline in a decade.

New issuance from builders has dwindled to the lowest level in 18 months, and even some investment-grade property giants are facing sharply higher borrowing costs. High-profile Chinese bond funds managed by Fidelity and Value Partners are headed for record annual losses.

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