China Evergrande quiets on default; Kaisa softens following trading halt; PBF notes off

By Cristal Cody

Tupelo, Miss., Dec. 9 – Default fears in China’s property developer space continued to grow on Thursday with a default linked to China Evergrande Group and a missed bond payment this week from Kaisa Group Holdings Ltd.

China Evergrande’s dollar notes remained quiet over the session as the market absorbed the company’s default on two bonds issued by a subsidiary.

Kaisa Group’s notes softened with no announcements made on Thursday after trading in the company’s shares on the Hong Kong Stock Exchange was halted on Wednesday following a missed bond payment on Tuesday.

Both companies were downgraded on Thursday by Fitch Ratings following missed bond payments.

Fitch announced it dropped China Evergrande and subsidiaries Hengda Real Estate Group Co. Ltd. and Tianji Holding Ltd. to RD from C on Thursday. Evergrande’s senior notes rating was affirmed at C.

Fitch said the downgrades follow missed coupon payments due Nov. 6 for Tianji’s $645 million of 13% bonds due 2022 and $590 million 13¾% notes due 2023 after the grace period lapsed on Monday.

Evergrande has not made any announcements regarding the coupon payments that were due Nov. 6 or responded to a request for confirmation of coupon payments, Fitch noted.

“We are therefore assuming they were not paid,” Fitch said.

The non-payment triggers an event of default on the other dollar bonds from Evergrande and Tianji, according to Fitch.

Fitch said it downgraded Kaisa to RD from C and affirmed its senior notes rating at C after the company “failed to repay its $400 million of senior notes” that were due on Tuesday.

There is no grace period, and by missing the payment, Kaisa triggered an event of default for its other U.S. dollar notes, Fitch reported.

Kaisa also has not responded to requests for comments, Fitch said.

Default fears in China’s property space has stayed in focus with other issuers including Fantasia Holdings Group Co. Ltd., Sinic Holdings (Group) Co. Ltd., China Properties Group Ltd., Modern Land (China) Co. Ltd. and Sunshine 100 China Holdings Ltd. missing bond payments over the past few months.

On Monday, Sunshine 100 announced it defaulted on $170 million of its 10½% senior notes due Dec. 5, 2021.

Market tone was weaker over the day with stocks down and the Nasdaq off 1.71%.

The iShares iBoxx High Yield Corporate Bond ETF fell 39 cents to $86.43.

Oil prices declined over $1.

West Texas Intermediate crude oil benchmark futures for January deliveries settled $1.42 lower at $70.94 a barrel.

Distressed energy issues were mixed during the session.

PBF Energy Inc.’s 6% senior notes due 2028 (Caa1/B/B+) fell 1 point by the close.

Evergrande quiet

China Evergrande’s notes quieted in the secondary space on Thursday as the market absorbed the company’s official default, a source said.

Evergrande’s 8¼% senior notes due 2022 (C/C/C) were last seen trading flat on Tuesday at 23 bid after shedding 9 points on Monday.

China Evergrande’s 8¾% senior notes due 2025 (C/C/C) were last seen in the secondary market on Wednesday and trading at 20¾ bid.

The Shenzhen, China-based real estate developer reported last week in a regulatory filing that it could not guarantee that the group will have sufficient funds for its financial obligations.

Kaisa paper lower

Kaisa’s 9 3/8% senior notes due 2024 (C//C) slipped about 1 point on Thursday to the 34 bid area, a source said.

The issue is trading about 3¼ points softer this week.

Kaisa was downgraded in November following missed interest payments on its 11.7% senior notes due 2025 and 11.95% senior notes due 2023.

On Tuesday, the company’s $400 million of 6½% dollar bonds came due.

Trading in Kaisa’s shares on the Hong Kong Stock Exchange was halted on Wednesday, pending a company announcement.

The Shenzhen, China-based real estate developer did not release any announcements on Thursday.

PBF notes decline

PBF’s 6% senior notes due 2028 (Caa1/B/B+) declined 1 point to 64¼ bid in secondary action over the day, a source said.

The notes fell about 1 point on Wednesday.

The Parsippany, N.J.-based petroleum refiner’s issue is trading nearly 2 points better from last week.

Distressed index softens

Distressed index returns were weaker on Wednesday, according to the latest data available.

The S&P U.S. High Yield Corporate Distressed Bond index’s one-day total return declined to minus 0.59% from 0.58% on Tuesday and 0.34% on Monday.

Month-to-date returns were lower at 1.8%, compared to 2.4% on Tuesday and 1.81% at the start of the week.

Year-to-date total returns fell to 23.96% from 24.69% in Tuesday’s session and 23.98% on Monday.

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