A Chinese developer which extended dollar bonds last year failed to make a principal payment on the debt, sending shares plunging and highlighting the sector’s ongoing liquidity crunch despite improving sales.
KWG Group Holdings Ltd. — which builds high-rise apartments, office buildings and shopping malls primarily in China’s larger cites — said it didn’t pay $119 million of principal due Sunday on a note, constituting a default. An event of default has also occurred under the company’s eight other dollar bonds, according to an exchange filing.
Shares fell 12% Monday in Hong Kong to what would be a record closing low if the decline is maintained. KWG’s stock is down two-thirds from a Jan. 27 peak. Its dollar bonds remain below 20 cents, plunging to such levels after disclosing a default last month involving onshore borrowings.
The firm also said Sunday it has started working with advisers on a holistic plan for its offshore debt “to secure the sustainable operations of the group for the benefit of all stakeholders.”
The company’s struggles, coming less than four months after it sold a 700 million yuan ($101 million) onshore note guaranteed by state-owned China Bond Insurance Co., illustrates the ongoing struggles for some builders at a time new-home sales are slowing anew. A rebound earlier this year was fueled by a slew of efforts rolled out by Chinese officials to help the property sector.
KWG’s debt-repayment difficulties could be an indication of authorities prioritizing construction projects being completed and creditors having to wait in line for repayment. “Under the requirement of local government policies, substantially most of the Group’s cash are under strict pre-sale cash escrow at designated bank accounts in order to ensure completion of the properties under development,” the company said in Sunday’s filing.
The builder last month disclosed it didn’t pay 212 million yuan of principal due on bank and other borrowings. That default triggered 31.2 billion yuan of debt becoming repayable on demand. KWG separately said in its annual report that the firm faces multiple uncertainties “which cast significant doubt on the Group’s ability to continue as a going concern.”
--With assistance from Ken Wang.