(Bloomberg) -- Chinese junk dollar bonds are hovering near a record low set in March, as the country’s property crisis deepens with pain spreading from developers to suppliers and banks.
Prices of China’s high-yield dollar notes, mostly issued by real estate firms, were steady Wednesday morning, according to credit traders. A Bloomberg index tracking the sector shows prices fell 1.8% Tuesday to 57 cents on the dollar, a level just inches away from its lowest ever seen four months ago.
The housing woes in the world’s No. 2 economy are hitting every corner of the industry, heightening risks for banks as a loan boycott that started with homebuyers expands to suppliers to cash-strapped developers. There appears no end in sight for a record wave of defaults by Chinese real estate firms given the relatively moderate and incremental support Beijing has offered to the sector so far.
“Investors are concerned that it’s just a matter of time for liquidity stress to spread to larger and healthier developers,” said Daniel Fan, an analyst at Bloomberg Intelligence. “If the offshore refinancing channel remains shut, keeping repaying debt with their own cash is not a sustainable strategy and will eventually hurt the cash flow.”
Investor pessimism about the industry looks so entrenched that a Chinese developer which received a state bailout in May suffered record losses in a dollar bond this week, fueling a wider selloff that also engulfed investment-grade peers including China Vanke Co. and Longfor Group Holdings Ltd.
Heavy debt maturities facing developers in the third quarter are also weighing on investor sentiment, Fan said. High-yield builders need to repay a combined $3.7 billion of offshore bonds and $6.1 billion worth of domestic notes between July and September, excluding issuers that have already defaulted or extended debt, according to a recent report by Bloomberg Intelligence.
There are few signs that the severe liquidity squeeze olaguing China’s weakest developers will end anytime soon, unless policymakers take more potent measures to ease the crisis. Beijing has boosted credit supply and relaxed some property curbs but has refrained from more aggressive monetary easing such as deeper interest rate cuts.
Chinese banks held their main lending rates steady this month, highlighting a central bank caught in the delicate balancing act of preventing faster inflation and supporting economic growth.