One Of China's Most Trusted Real Estate Brands Defaults On Billions In Offshore Bonds

China SCE Group Holdings Ltd. became the latest in a line of Chinese property developers to default on its debt Wednesday, after the company said that it could not meet interest and principal payments for up to $1.8 billion in senior offshore notes. The bonds were suspended from trading upon the announcement.

The company was once ranked 6th in a 2020 survey among China’s most-trusted property brands.

SCE Group indicated in a statement that it may not be able to meet its other obligations in the near future too. The company said that since the start of 2022 it has met repaid about $1.6 billion in loan notes but that it did not have $60 million of cash on hand to make the payments now due on some of its senior debt. SCE Group cited sluggish demand for new developments as the reason for the cash-flow squeeze.

“Entering the second quarter of 2023, the Group’s sales declined continuously, and its liquidity position became increasingly tight and the pressure to pay off its offshore debts continued to increase. Despite the Group’s best efforts, the Group’s liquid cash and bank deposits may not be sufficient to meet its current and future obligations,” SCE Group said in a statement.

The notes that have been suspended from trading comprise four tranches of debt maturing in 2024 to 2026. $500 million of 7.375% senior notes due April 2024, $450 million of 5.95% senior notes due September 2024, $500 million of senior notes due May 2025 and $350 million of 6% February 2026 senior notes were all suspended from trading.

The multi-billion dollar debt default echoes a similar default by China’s fourth-largest developer China Evergrande Group Ltd EGRNF last week when the company’s Hengdu Real Estate Co Ltd. subsidiary said that it could not repay principle and interest on $537 million of offshore debt. That followed a similar default on US dollar debt by major developer Sino Ocean Group Holding Co Ltd. in mid-September.  

The increasingly troubled sector has brought about a sharp sell-off in Hong Kong stocks this year as the unknown extent of defaults continue to weigh on investors’ minds.

Some are speculating that the Chinese government will step in with a bail-out for property developers, similar to the way the US government bailed out automakers such as Ford Motor Co F and General Motors Co GM as well as giant financial institutions Morgan Stanley MS, The Goldman Sachs Group Inc. GS, Bank of America Corp. BAC and JP Morgan Chase & Co JPM in the 2008 subprime crisis.

The company's stock is down nearly 80% year-to-date. Shares in SCE Group ended the day 5% lower.