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Chinese conglomerate Dalian Wanda has sparked volatile trading in Asian high-yield bond markets over whether it would repay a $400mn bond which matures on Sunday.
The debt on Thursday traded up around 46 per cent to 90 cents on the dollar on speculation that investors would be repaid, just days after it collapsed on investor concerns the group did not have enough cash on hand.
The deadline is the latest tremor across a market still reeling from a series of Chinese property defaults after the 2021 failure of developer Evergrande fuelled a wave of contagion.
The turbulence for Wanda bonds has added to unease across the market for high-yield dollar bonds in Asia. Bloomberg data shows the average price of dollar junk bonds from Chinese issuers has dropped $0.02 this week to about $0.68 on the dollar, a seven-week low.
The fall has cut short hopes of a recovery for the market, which had been bolstered by hopes of more support from policymakers.
It is one of several issues driving renewed turmoil in international Chinese property bonds. Several months ago investors had hoped the sector would be able to tap markets for fresh funding but then China’s economic outlook turned more pessimistic.
“It’s a bad time for the property market because there’s so many individual events coming together at once,” said Sandra Chow, co-head of research for Asia-Pacific at CreditSights, who pointed to concerns over Chinese developers Sino-Ocean Group and Shui On Land.
Traders and investors are closely following the trajectory of the country’s real estate industry, where activity remains paralysed, businesses are cut off from international funding and pressure on policymakers is mounting as economic momentum weakens.
The bonds were issued by Dalian Wanda Commercial Management, a subsidiary of the Dalian Wanda group which is not a property developer but became widely known internationally for its purchases of real estate and businesses outside of China, including a stake in Spanish football club Atletico Madrid in 2014.
Rating agency S&P downgraded the company three notches on Thursday to CCC on “non-payment risk” and estimated it had only $200mn, or half the required funds, currently available.
“We believe the company faces significant execution risk in unfreezing offshore cash that could be pledged for onshore borrowings,” S&P analysts noted.
One direct investor in the Dalian Wanda bonds said the company had not communicated with them regarding the availability of funds despite widespread reports of the shortfall. “One or two weeks ago they guided they were able to make the payment,” the person said. “It definitely hurts investor confidence towards this sector, although there’s not much confidence left.
Activity in the Asian high-yield market has shrunk dramatically because of the issues at Chinese real estate companies, which were previously the market’s biggest borrowers. Dalian Wanda has particularly rocked expectations because the company borrowed $800mn in two new bonds in January and February this year, becoming the first property-related China business to issue new debt this year and sparking hopes of a turnaround.
But those bonds are now trading at between 20 and 30 cents on the dollar, amid a continued lack of market access despite government efforts to boost confidence and encourage new borrowing. “This won’t stop until every developer has done an extension,” predicted one investor in Hong Kong.
This week’s uncertainty over whether debt payments will be made has echoes of the 2021 defaults of developers such as Kaisa and Evergrande, which this week disclosed for the first time that it incurred $81bn in losses over the past two years.
Chow noted the investment grade market was “stable” in Asia but that the chapter in which high yield developers could borrow was now “closed”.
“People are a bit jaded now, and people kind of get it,” she said. “Property is a big problem and it’s not going to be sorted for a long time”
