HONG KONG—Even a government bond guarantee was not enough to prevent a crisis of confidence at one of China’s property developers, which struggled this week to convince investors it can repay its debt.
Earlier this month, CIFI Holdings (Group) Co.,
one of the country’s top 20 developers by contract sales, issued the equivalent of $167 million in new yuan-denominated bonds insured against default by a state-backed entity. It was part of a select group of six property companies to take part in a pilot program designed to help private sector developers raise money and give investors assurance they would get their money back.
Days later, CIFI’s Hong Kong-listed shares fell to a record low and prices of its dollar bonds plummeted after media reports said the company was having trouble making payments on some of its onshore obligations, including a trust product. The reports also cited an internal letter from CIFI’s chairman saying the company could face “unprecedented challenges” to its cash flows in the coming months.
The developer attempted to address the reports in a regulatory filing on Wednesday, but its share and bond prices fell further on Thursday.
A CIFI dollar bond due in 2025 was recently bid at about 19 cents on the dollar, according to Tradeweb, a deeply distressed level that indicates investors expect the company to default on the debt. The company’s shares have lost half their value in the past week.
CIFI said on Wednesday that serious difficulties and challenges created by China’s real estate industry downturn and the Covid-19 pandemic have brought “pressure on companies’ operations and cash flows.”
It said the letter from Lin Zhong, its chairman, was intended for certain employees and was for internal circulation only. It added that the content of the letter should not suggest that the company cannot pay its debts as they fall due.
The company also said it had raised money from an equity investment product to fund a property development in Tianjin, a northern port city near Beijing.
“The market sentiment in the local housing market has affected the development and sale of such a project, thus affecting the cash distribution of the said mutual fund product,” CIFI said. It added that it is in discussions with the financial institution that issued the product to reach a solution.
CIFI did not respond to a request for comment.
China’s property slump has already caused dozens of Chinese developers to default on their US dollar bonds. Some companies that appeared to be resilient and financially stronger at the start of this year are now facing more financial pressure as their sales of new apartments have fallen sharply.
Recent developments surrounding CIFI may adversely affect the developer’s future attempts to raise more money. The negative headlines could “damp its access to financing, which is critical for the company to meet debt repayments,” Leonard Law, a senior credit analyst at Lucror Analytics, wrote in a recent note.
CIFI was founded in 2000 in Shanghai. Last year, it ranked as the 13th largest developer in China by contract sales, according to China Real Estate Information Corp., an industry data provider.
Write to Cao Li at li.cao@wsj,com
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