(Bloomberg) — The ongoing bond plunge for resort chain Club Med’s Chinese owner shows that financial stress among the country’s property developers is shifting to other weaker borrowers.
In a sign of contagion, prices slid Tuesday for some Chinese industrial firms’ offshore debt after a Monday selloff in Macau’s casino operators. Meanwhile, last week’s slump for conglomerate Fosun International Ltd.’s dollar bonds accelerated, with some on track for record declines.
Fosun didn’t immediately respond to an emailed request for comment.
The declines in Fosun’s offshore debt started last week after Moody’s Investors Service put the firm on review for a downgrade and highlighted contagion risk from China’s ongoing property-sector woes. Developers have been at the center of a record pace of corporate-debt defaults, which have occurred with junk-rated firms largely unable to refinance debt through selling new bonds as yields have been above 20%.
How China’s Property Developers Got Into Such a Mess: QuickTake
The steep losses in Fosun’s bonds spreading to non-property high-yield companies are pushing China’s junk dollar debt market into a new phase. The pressure on Fosun also is a reminder of the heavy economic toll that a two-month Covid lockdown took on businesses with heavy exposure to the Shanghai region.
The selling in Fosun’s offshore bonds “is a reflection of broader wariness of potential downside in this current market environment, with many risks remaining unresolved in China and globally,” said Henry Loh, investment manager at abrdn Asia. “I’d imagine that the aggressive downward spiral experienced in Chinese real estate remains very fresh in investors’ minds so that will likely be a factor in many investors’ reaction.”
Moody’s said in last week’s announcement that Fosun’s tight cash flow drove its decision to put the firm on downgrade review. Liquidity is “very weak at the holding company level” and insufficient to cover debt maturing over the next 12 months, according to Moody’s analysts including Lina Choi. Fosun, co-founded by tycoon Guo Guangchang, has operations from pharmaceuticals to tourism and insurance.
The credit assessor also cited contagion risks from China’s real estate sector on Fosun’s property exposure, saying it expects the firm to face challenges in accessing the bond market “amid onshore and offshore investors’ increasing risk aversion toward high-yield privately-owned companies with exposures to the property sector.”
(Updates details in the first four paragraphs.)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
