Chinese luxury villa developer Tahoe Group failed to repay investors of a domestic bond, in a sign of increasing financial strain on the mainland’s aggressive home builders as the coronavirus pandemic exacerbated a liquidity crunch.
The Shenzhen-listed company was unable to make payment for bond principal and interest worth 1.6 billion yuan (US$228 million) due on Monday “despite efforts to raise funds in many ways”, Tahoe Group said in a stock exchange filing on Tuesday. The bond, with a face value of 1.5 billion yuan, was sold in July 2017 with an annual coupon of 7.5 per cent.
“Due to the impact of an overall downward-trending property sector and the coronavirus pandemic, the company’s inventory sell-through rate has fallen, and the sales prospect has worsened,” the Fujian-based developer said.
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While most of China’s real estate sector has gradually recovered from the shock of the Covid-19 outbreak, some of the highly-leveraged players in and outside the industry are still struggling to restore their cash flow. The world’s second-largest bond market saw a 40 per cent jump in missed corporate bond repayments totalling 64 billion yuan this year through May, according to Wind Information.
Tahoe Group is facing a liquidity squeeze caused by a large amount of debt at high financing cost, with the debt load maturing in a concentrated period of time, it said. It has borrowed massively from investment trust companies and had 23.6 billion yuan in debt past due as of June 12, it said in the stock exchange filing.
It is the largest Chinese developer to have defaulted on a bond repayment so far. Its ranking has slipped to 42nd in 2019 from 20th in 2018, according to industry consultancy China Real Estate Information Corporation. Its sales plunged 44 per cent in the first half this year to 25.4 billion yuan from a year earlier, CRIC estimated.
The group’s financial problem has not only upset creditors. Hundreds of buyers of its pre-sold flats across the nation have staged protests outside its sales centres after construction stalled, fearing that the developer will run out of cash to complete its projects.
This week’s bond delinquency is likely to foreshadow more troubles later this year as the developer comes up against a wall of debt maturity.
Three onshore bonds worth a combined 4.4 billion yuan will be due by early October, while a total of US$841 million of dollar-denominated debt is set to mature over the next 12 months, according to its financial reports.
Meanwhile, cash and cash equivalent stood at just 5.6 billion yuan by the end of March, declining by nearly 60 per cent from the end of 2019, according to Tahoe’s first-quarter earnings report.
The group will continue to raise funds to repay the debt, it said. Its parent company is also planning to introduce strategic investors to help boost liquidity and ease the mounting debt pressure, according to the filing.
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This article Tahoe Group misses another bond repayment as liquidity crunch worries creditors and homebuyers first appeared on South China Morning Post