Sichuan Languang has been downgraded to D by S&P after it missed the payment of its onshore CNY 900mn ($139mn) 7.5% 2021s that matured on Sunday. Including the interest and the principal, the developer failed to repay ~CNY 968mn ($149.5mn) on the medium-term notes. The non-payment is expected to trigger wider cross-defaults and accelerated payments on other debts owed by the company and lead to a general default. The company is left with only CNY 207mn ($32mn) cash in hand. Due to the liquidity crunch, the developer is also not likely to repay its CNY 3.3bn (~$510mn) onshore bonds maturing over the next three months. The company has upcoming payments on its CNY 1.6bn ($247.5mn) notes maturing on July 29 and possibly CNY 1.1bn ($170.2mn) notes with a put option on July 23. The non-payment will eventually expand to offshore bonds which include its $300mn 8.85% 2022s, $450mn 11% 2022s and $300mn 10.4% 2023s issued through Hejun Shunze Investment. S&P said that Sichuan’s “strained liquidity is highlighted by the company’s reported overdue bank and trust loans of about RMB3.6 billion ($556mn). Project stakes have also been frozen by Chinese courts in recent months owing to applications filed by trust companies.” It further added, “We do not expect the company to be able to repay the note within the stated grace period of 10 days, given its exceptionally weak liquidity.” The developer was downgraded  to CCC- from B- by S&P on June 18 and to Caa3 from B3 by Moody’s on June 22. The actions followed previous downgrades on May 31 by both S&P and Moody’s. The creditors of the CNY 1bn and CNY 280mn domestic bonds plan to meet on July 27 to discuss the way forward.

Bloomberg also reported that Chinese High Yield (HY) dollar bonds saw the worst sell-off since March 2020. The property developers form a major part of the Chinese high yield bond market and the focus is now on Evergrande – the most indebted real estate developer in the world which has been under the lens of the Chinese authorities. Details had emerged earlier this month on $32bn outstanding commercial bills which has raised concerns among the investors.

Sichuan Languang’s 8.85% 2022s11% 2022s and 10.4% 2023s continue to trade at distressed levels of 29.91, 29.75 and 29.25 respectively.
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