China builders slide to record lows as top chairwoman Wu Yajun steps down

A sudden resignation by the founder and chairwoman of a top Chinese builder has added to concerns over China’s ailing property sector, fueling a further selloff that dragged many securities to record lows.
 

Longfor Group Holdings Ltd., the country’s 10th-largest builder, tumbled in the bond and share markets Monday after billionaire Chairwoman Wu Yajun stepped down, citing health and age reasons. China’s builder-dominated high-yield dollar bonds, which haven’t posted a daily gain in nearly four weeks while logging one of their worst-ever monthly losses, fell another 1 cent to 3 cents, according to credit traders.  

The departure of Longfor’s chairwoman comes at a time investors’ confidence in China’s property sector had already been shattered by record defaults, slumping new-home sales and few signs of effective support for the debt-ridden industry. Junk dollar notes have been setting record lows on a daily basis of late, in contrast to October gains for such debt in the US and Europe. 

Meanwhile, a Bloomberg Intelligence stock gauge of Chinese builders is at levels unseen since 2011. The equity index fell 4.7 per cent Monday to put this year’s slump at 51 per cent. Shares of China’s largest developers by sales, Country Garden Holdings Co. and China Vanke Co., skidded at least 9.8 per cent on the day in Hong Kong, hitting record lows, while third-ranked Poly Developments and Holdings Group Co. fell the 10 per cent limit in Shanghai.

Investment-grade Longfor was the first among a small group of private-sector real estate firms to sold local bonds under a program which emerged in August for state-owned China Bond Insurance Co. guarantee such offerings. A company official said earlier this month that Longfor was planning a second sale.

That scheme initially fueled a rally in the broader market for Chinese builders’ dollar notes. But the optimism quickly faded amid worries about CIFI Holdings Group Co., which ultimately failed to honor a convertible-bond coupon in early October just weeks after raising money under the guarantee program. 

Monday’s rout in Longfor securities has created fresh doubts about if the scheme will help developers. 

“The guaranteed-note sales could ease refinancing pressure slightly, but it won’t be able to hold up market confidence for long,” said Yang Hao, a bond analyst at Nanjing Securities Co. “Ultimately, investors need positive signs from developers’ fundamentals.” The next data point will be preliminary October sales data due later Monday from China Real Estate Information Corp. 

Longfor on Monday tried to soothe market nerves, disclosing a partial early repayment of a syndicated loan due in 2023 and saying its controlling shareholder bought stock during the morning’s plunge. 

The firm’s debt and equity climbed off session lows to stem a bit of the losses. Still, shares closed down 24 per cent to put this month’s plunge at 56 per cent, both the most ever. Longfor’s longer-dated dollar bonds, which slumped by record amounts last week, fell as much as 15 cents further Monday. Also, four onshore notes suffered trading halts after skidding more than 20 per cent.