Chinese property stocks fall despite Dalian Wanda avoiding default

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Mainland Chinese property stocks fell sharply on Monday after a last-ditch bond repayment by conglomerate Dalian Wanda failed to allay investor concerns about the sector.

The group raised $320mn through the partial sale of a subsidiary over the weekend and repaid a $400mn bond that had been due on Sunday, according to two direct investors, who asked to remain anonymous.

However, shares fell in other prominent property businesses, including China’s largest homebuilder Country Garden, in a sign of the continuing pessimism over a sector that has weighed on the Chinese economy after a wave of earlier defaults. The Hang Seng Mainland Properties index closed down 6.4 per cent on Monday in Hong Kong, far outstripping a fall of around 2 per cent by the city’s benchmark Hang Seng stock index.

Hong Kong-listed media company China Ruyi Holdings said in a stock exchange filing that Dalian Wanda had agreed to sell a 49 per cent stake in its entertainment unit Beijing Wanda Cultural Industry for Rmb2.26bn ($315mn). Dalian Wanda did not immediately respond to a request for comment.

The company’s lack of communication over its debt problems has added to market volatility, echoing the defaults of Evergrande and its peers in late 2021 when there was also a lack of official announcements from the debtors.

Asian high-yield bond markets were shaken in recent days over concerns that Dalian Wanda, the only property-related group to successfully issue dollar-denominated debt this year, would join a host of other property businesses, including Evergrande and Kaisa, in failing to make an international repayment deadline.

The company initiated a 10-day grace period for a missed interest payment on the bond last Thursday, while another of its notes maturing in 2025 is trading well below par at 80 cents on the dollar.

Fears of a default, especially given Dalian Wanda’s status as a well-known enterprise with an international footprint, added to concerns about wider contagion stemming from China’s property woes, with many developers locked in protracted restructuring processes.

“Distressed Chinese property developers’ bond restructurings can buy them some room to normalise operations, but most will continue to face repayment difficulties if home sales do not recover for a sustained period,” Fitch Ratings wrote on Monday.

Activity in China’s property sector remains depressed nearly two years after Evergrande, the world’s most indebted developer, defaulted on its borrowings and a wave of subsequent failures weighed on construction and economic activity. Beijing has offered supportive measures but has stopped short of major stimulus.

Evergrande attended a court hearing in Hong Kong on Monday to ascertain whether it could hold a vote on an offshore plan that would see international creditors exchange their holdings for notes linked to Hong Kong-listed subsidiaries.

Any meeting for a vote should shed further light on the future of the company and its vast $340bn in liabilities. Last week, it disclosed losses of $81bn over 2021 and 2022.