Chinese developer Modern Land misses payment on dollar bond as spotlight shifts again to Evergrande

Hong Kong

FURTHER signs of stress emerged in China's indebted real estate sector after Modern Land China Co missed payment on a dollar bond, ahead of a test later this week for China Evergrande Group on an overdue coupon.

Modern Land did not repay either the principal or interest on a US$250 million bond due on Oct 25, according to a filing to the Singapore stock exchange on Tuesday (Oct 26) morning. The company is working with its legal counsel Sidley Austin and expects to engage independent financial advisers soon, the filing said.

China has clamped down on the indebted real estate sector, making it difficult for developers to refinance as they face falling home prices and sales. Multiple developers have defaulted this month, though Evergrande made a coupon payment last week before a grace period expired.

The focus now turns to the end of a grace period on another Evergrande dollar bond later this week. Still, the company's creditors are bracing for an eventual debt restructuring that could rank among the largest ever in China.

Economists have again lowered their growth forecasts for China over the coming year amid power shortages and a worsening property market downturn, a Bloomberg survey showed.

Gross domestic product (GDP) will likely expand 8.1 per cent in 2021 and 5.3 per cent next year, according to the median estimate in the latest quarterly survey by Bloomberg. That is down from a previous projection of 8.4 per cent and 5.5 per cent respectively. Fourth-quarter GDP growth forecasts were slashed by nearly 1 percentage point to 3.5 per cent.

Former state researcher Jia Kang said he believes that Evergrande is not insolvent and the crisis will be resolved according to market principles, in comments made in an interview with the official Changjiang Daily newspaper about the implication of a property tax for the real estate industry.

"The Evergrande incident is a short-term problem," Jia said in the article posted on his WeChat account on Tuesday. "It is pretty clear now that it is not insolvent." The developer "should deal with its own asset portfolio in accordance with commercial principles," he said, adding that "the domino effect on the property industry from the Evergrande crisis can be avoided."

He also said that the possibility of other enterprises acquiring equity stakes in the developer should not be ruled out. Jia, now a consultant, was previously director of the fiscal science research institute at the Ministry of Finance.

Chinese borrowers have defaulted on a record of at least US$8.7 billion of offshore bonds so far this year, with the real estate industry accounting for one-third of that amount. That has come as authorities clamp down on excessive leverage in the real estate sector.

The nation's developers with the worst balance sheets are getting crushed by a spike in borrowing costs, a phenomenon that is intensifying as bills come due this month.

Modern Land became at least the fourth property firm to miss dollar bond payments in October, after Fantasia Holdings Group Co, Sinic Holdings Group Co and China Properties Group. Evergrande, which pulled back from the brink of default last week by paying a bond coupon just before the deadline, faces a US$45.2 million interest payment on Oct 29.

Credit rating cuts for Chinese developers have accelerated further in October, hitting a record high for a second straight month. There were 44 reductions by Moody's Investors Service, S&P Global Ratings and Fitch Ratings as of Oct 21, after 34 downgrades for all of September, according to Bloomberg-compiled data. BLOOMBERG