Monday, November 29, 2021
International

China property tycoons use their own cash to avert default

China property

With China’s home sales and prices declining, banks growing reluctant to lend, and yields in the offshore bond market soaring, many developers are counting on their founders as a last resort

Billionaire owners of Chinese property developers have dipped into their own pockets for at least $3.8 billion to save their troubled companies from default, as a cash crunch engulfs the industry.

From sales of luxury assets to stakes in sought-after listed companies, the personal balance sheets of China’s property tycoons have become key for investors to determine whether developers will meet their debt obligations. Founding chairmen of at least seven real estate companies have tapped their wealth in recent weeks to support the firms.

With China’s home sales and prices declining, banks growing reluctant to lend, and yields in the offshore bond market soaring, many developers are counting on their founders as a last resort.

In China, regulators can pressure the large or controlling shareholders to mix their personal assets with the company’s and treat the two as inseparable, said Zhiwu Chen, director of the Asia Global Institute at the University of Hong Kong. It’s also partly because the controlling shareholders, especially founders, often do treat the company’s assets as if they were their personal property.

At least for now, such moves have boosted sentiment among bondholders.

China Evergrande Group’s 8.25% dollar bond due next year has rebounded to nearly 30 cents on the dollar from a record low of 22.7 cents a month earlier, after its Chairman Hui Ka Yan raised funds by disposing of personal assets and pledging shares. While it is unclear how the money was used, the property giant has averted default three times by paying overdue bond interest.

Notes of Sunac China Holdings Ltd., Guangzhou R&F Properties Co., Shimao Group Holdings Ltd. and CIFI Holdings Group Co. all rose after news of their founders’ support.

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