Zhongliang extends bond swap deadline as default looms

Mainland developer Zhongliang Holdings has extended a deadline for creditors to accept an exchange offer on two of its US dollardenominated bonds in a lastditch attempt to avoid a default.

The company has been unable to take out new loans due to Beijing’s so-called three red lines system that limits property firms’ financing to avoid the possibility of sector-wide defaults, and has already faced liquidity issues. Like its peers, sales have also fallen in a weak market.

“It is a very frustrating decision, as we have tried very hard to pay our debt since last year. But the slump in property sales recently has further hit the sector,” chief financial officer Albert Yau said.

“We are calling for the bondholders to give us some more time. If the offer is scrapped, a default could become inevitable, and it is the last thing both the company and the creditors would like to see.”

One bond that is due on May 19 comprises US$300 million of senior notes with a coupon of 8.5 per cent, while the other due on July 29 consists of US$450 million of senior notes with a coupon of 9.5 per cent.

The exchange offer would extend the maturities to April 15, 2023 and December 31, 2023 and raise the yields to 8.75 per cent and 9.75 per cent respectively, the company said in a filing to the Hong Kong stock exchange on April 28.

Creditors holding 90 per cent of the total value of the bonds must agree to the exchange offer if it is to go ahead. The company said it had no other offshore bonds maturing this year.

The company sold 4.1 billion yuan (HK$4.9 billion) worth of homes in April, down by 71 per cent from a year ago. It was also a sharp drop from the 6.8 billion yuan sold in March before authorities instituted lockdowns to contain the latest Covid-19 outbreak.

The property market has shown no signs of recovery even after many local authorities relaxed measures to boost home sales and top executives emphasised the importance of stabilising the sector.

“Investors are overall cautious on China property as they see those measures as ineffective in helping solve developers’ liquidity issues,” said Raymond Cheng, managing director at CGS-CIMB Securities.