China developer seeks to assure investors after missed trust payments

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Property developer China SCE Group Holdings Ltd. sought to assure investors in a 1.6 billion yuan ($223 million) trust product after a unit missed payments due last month, saying the investment is backed by sufficient valuable assets.

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The SCE Group subsidiary, along with a unit of another Chinese developer Shimao Group Holdings Ltd., each failed to pay their share of the trust product, which was used to finance the construction of a residential and commercial project, Bloomberg reported on Monday.

SCE Group said on Tuesday that the project is valued at about 3 billion yuan and sufficient to cover the trust. Sales of the development remain normal, reaching more than 50 million yuan in September, the company said in a response to Bloomberg questions on the missed repayment.

SCE Group’s Xiamen Zhongjun Industrial Co. and Shimao’s Shanghai Shimao Jianshe Co., both guarantors of the trust product, had their bank accounts frozen by a court after Everbright Trust Co. sued them to seize assets, according to documents seen by Bloomberg earlier.

The two developers of the project and their guarantors haven’t paid either the principal or the returns, and therefore “materially violated” the contract, Everbright Trust said in a statement, dated Oct. 9, that was posted on its website Tuesday.

Based in Fujian province, SCE Group is the latest developer to be embroiled in China’s real estate woes as Covid restrictions and an economic slowdown weigh on home sales, despite stepped up government measures to shore up the market. Until recently, the company had shown little sign of distress even as defaults engulfed bigger rivals such as Shimao, which has missed payments on multiple trust products.

Separately, SCE Group said it has repaid two dollar bond coupons totaling $31.8 million due in the past two weeks.

SCE Group’s dollar bonds fell on Tuesday. Its bond due 2026 slid 3 cents on the dollar to 10 cents, set for the largest one-day decline in nearly three months and the lowest closing level on record.

Ranked 27th nationwide by sales, SCE Group earlier this year repaid a $500 million offshore bond and sold an additional $150 million worth of senior notes in what it called a demonstration of investor confidence “at a time when the financial market was in turmoil.” It was among a few developers selected to issue state-guaranteed onshore bonds as they are considered financially stronger than peers.

The trust product, called Hongtai No. 13, was used to fund the construction of a project by the two developers in Jinan, in eastern Shandong province. Construction and sales remain under way, and Everbright Trust is seeking delayed repayments in installments to investors as more sales proceeds come in, according to a document seen by Bloomberg.

China’s home sales have fallen for more than a year, squeezing a key source of property firms’ liquidity and leading to rising defaults on everything from public debt and bank loans to trust borrowings for property projects.

Defaults on property-linked trusts amounted to 56 billion yuan in the first half, accounting for more than 82% of the total, according to research provider Use Trust. The woes have sparked protests in several cities as buyers demanded repayment on what were supposed to be safe, short-term investments.

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