THE main units of China SCE Group Holdings and Shimao Group Holdings missed payments on 1.6 billion yuan (S$323.5 million) of trust borrowings, adding to a string of defaults by Chinese developers as the industry’s liquidity crunch spreads.

Xiamen Zhongjun Industrial Co, a unit of SCE and one of the guarantors, failed to repay its 50 per cent share of a trust product that was due at the end of September, according to documents sent by the issuer Everbright Trust Co to the product distributor that were seen by Bloomberg News. Xiamen Zhongjun and Shanghai Shimao Jianshe Co, the other guarantor, both had their bank accounts frozen by a court after Everbright Trust sued them to seize assets, the documents showed.

SCE Group, Shimao and Everbright Trust didn’t immediately respond to requests for comment.

SCE Group became the latest victim of China’s worsening real estate woes as Covid restrictions and an economic slowdown weigh on home sales despite stepped up government measures to shore up the market. Until now, the company had shown little sign of distress, even as defaults engulfed bigger rivals such as Shimao, which has missed payments on multiple trust products. 

Ranked 27th nationwide by sales, SCE Group earlier this year repaid a US$500 million offshore bond and sold an additional US$150 million worth of senior notes in what it called a demonstration of investor confidence “at a time when the financial market was in turmoil”. It was among a few developers selected to issue state-guaranteed onshore bonds, as they are considered financially stronger than peers.

SCE Group’s dollar bonds fell on Monday (Oct 10), while Chinese junk dollar bonds rose in general. Its next bond to mature, a note due in April 2023, fell 3.1 cents on the dollar in the largest daily decrease in about five weeks, according to Bloomberg-compiled prices.

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Xiamen Zhongjun is the issuer of SCE Group’s domestic bonds due in July 2024 and October 2025, according to its interim report.

The trust product, called Hongtai No 13, was used to finance the construction of a residential and commercial project that is jointly developed by the two developers in Jinan of eastern Shandong province. The project’s construction and sales remain under way and Everbright Trust is seeking delayed repayments in installments to investors as more sales proceeds come in, according to the documents.

China’s home sales have fallen for more than a year, squeezing a key source of property firms’ liquidity and leading to rising defaults on everything from public debt and bank loans to trust borrowings for property projects. The home market remained subdued despite a raft of policies pushed out before a traditionally sales-friendly week holiday, with transactions down 38 per cent from a year earlier in 20 major cities. 

The housing market slowdown has contributed to a surge in missed payments in the trust industry, which has about US$3 trillion outstanding in high-yield products sold to wealthy individuals. That includes about US$200 billion backed by developers. Defaults on property-linked funds amounted to 56 billion yuan in the first half this year, accounting for more than 82 per cent of the total, according to research provider Use Trust. The woes have sparked protests in several cities as buyers demanded repayment on what were supposed to be safe, short-term investments. BLOOMBERG