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Investors have a new default worry in China's debt market
INVESTOR confidence in China Fortune Land Development Co is tumbling as concerns grow about its debt repayment abilities just as Beijing steps up efforts to cut risk in the real estate sector.
The mid-sized developer's US dollar bonds fell to record lows earlier on Tuesday, with some rebounding but a note due 2024 still down at 53.5 US cents on the dollar at 3pm Hong Kong time, Bloomberg-compiled prices show. The bond was quoted at around 86 US cents at the end of last year.
The firm's onshore bonds also slumped, with one due December 2025 down 58 per cent at 43 yuan (S$8.84).
Losing 3.2 per cent on Tuesday, the developer's shares have sunk 48 per cent in the past 12 months, making it the worst performer on the CSI 300 Index.
Worries about China Fortune Land's weak finances came as Beijing is mulling tighter controls of the industry's financial risk caused by years of aggressive borrowing.
That has sent some of its US dollar debt to distressed levels even after the firm's parent has wired funds to pay a combined 1.4 billion yuan in early redemptions due Monday for two onshore notes.
The developer and its subsidiaries need to repay or refinance some US$4.4 billion of its onshore and offshore debt this year - about 40 per cent of its total bonds, Bloomberg-compiled data show.
"It is a lightning rod for the policy restrictions and deleveraging fears, such as the 'three red lines' policy that curbs developers' debt metrics, and the bank lending restrictions," said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group in Singapore.
He added that investors' concerns over China Fortune Land's future debt repayment abilities and whether key shareholder Ping An Insurance (Group) Co can continue its financial support also played a role in its US dollar bond plunge.
"There's concern the firm could be be the first casualty of Beijing's policy tightening focus," he added.
China Fortune Land did not immediately respond to written questions seeking comment.
China's debt-laden real estate firms are once again under scrutiny after China Evergrande Group, the world's most indebted developer, caused brief turmoil in the country's financial markets due to fears of a cash crunch in late September.
Beijing is now planning to expand a trial programme aimed at curbing financial risk in the property sector by adding more firms to a watch-list of 12 developers that need to meet debt metrics known as the "three red lines" if they want to borrow more.
Last month, regulators also took an unprecedented decision to impose caps on banks' lending to developers.
Ping An is China Fortune Land's second-largest shareholder, so any doubt over Ping An's support will likely scare the market, said Zhi Wei Feng, senior credit analyst at Loomis Sayles Investments Asia.
Investor patience is waning and the current bond prices reflect "extreme concern" over the company's ability or willingness to pay, she added. BLOOMBERG