Bonds from Chinese real estate giant Country Garden see wave of sales

Investors in China’s real estate bond market are holding back as a crisis of confidence appears to spread to apparently healthier developers, generally spared from last year’s sell-off.

The latest case for concern is Country Garden Holdings, the country’s biggest developer by 2021 pre-sales, according to China Real Estate Information Corp.

The company is one of the few private companies in the industry with much better credit ratings than its highly leveraged competitors.

Until recently, Country Garden’s dollar bonds had been largely shielded from the surge in sales triggered by government limits on borrowing, slumping home sales and the financial struggles of rival China Evergrande.

On Monday, however, a Country Garden bond due in 2026 was quoted at $0.675, according to Tradeweb.

The bond, which is investment grade by two of the top three global rating agencies, has seen its price drop sharply in recent days, dropping more than $0.20 in three sessions.

The company’s share, in turn, fell 8.1% this Monday (17) in Hong Kong, reaching its lowest closing in almost five years. Shares of some smaller competitors, such as Cifi Holdings and Sunac China, also retreated.

Analysts and investors said a change in attitude by Country Garden about a potential fundraiser had contributed to the market’s displeasure.

Last week, the company decided not to go ahead with the sale of a convertible bond after banks failed to garner enough investor interest for a potential $300 million deal, according to one source.

The company said it had evaluated different financing alternatives.

In an emailed response, Country Garden said it had more than 186 billion yuan ($29.3 billion) of cash in June on strong cash flow.

Weak consumer sentiment, however, means “even the strongest developers can face volatility, because of rumors and negative headlines,” said Luther Chai, senior research analyst at CreditSights.