China’s real estate and bond stocks fell as the sector’s woes were exacerbated by the faltering report issued by the Commission on International Investment (CIFI)

China’s real estate and bond stocks fell as the sector’s woes were exacerbated by the faltering report issued by the Commission on International Investment (CIFI)

SHANGHAI (Reuters) – Investors dumped shares and bonds of Chinese real estate developers on Wednesday after a media report that CIFI Holdings (Group) Co. had defaulted on its debt raised concerns about the crisis-hit real estate sector.

Shares of Hong Kong-listed CIFI Holdings plunged 32.3% to a record low as of Wednesday’s market close, after credit information provider Reorg reported that a Chinese developer had defaulted on certain non-record debt.

In response to questions about the report, CIFI said it was actively seeking solutions, without giving further details. The company’s website said it was the eighth largest listed developer in China last year.

The stock slump, which came after the CIFI Chairman’s recent prediction of “unprecedented” liquidity pressures ahead, led to a brutal sell-off in the sector.

Stocks and bonds of other property developers also fell.

The mainland tracking developers index listed in Hong Kong fell more than 6.4% to its lowest level.

In Shanghai, bonds issued by real estate companies including CIFI Holdings, Sunac Real Estate and Gemdale Corp were among the biggest losers. The Shanghai Stock Exchange briefly suspended trading in CIFI bonds, citing abnormal volatility.

Investors are concerned that the sector’s monetary crunch has finally reached CIFI, which was considered one of the few relatively resilient private developers in the country, said Shujin Chen, head of China FIG research at Jefferies.

“The generally fragile investment sentiment in the wake of the drop in sterling and uncertainties regarding global monetary policy certainly hasn’t helped,” she added.

Sharp stock market (OTC:) losses this week also show that investors do not expect to announce new real estate stimulus measures during or after the 20th Communist Party Congress on October 16.

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Reorg, citing sources, reported that CIFI Holdings has not repaid debts under a project company known as Tianjin Xingzhou Real Estate Development Co.

In a letter to employees dated September 27, CIFI President Lin Zhong said the company’s priority now is to survive, as property sales in China remain sluggish amid COVID-19 lockdowns, economic slowdown and mortgage payments boycotts.

“The ordeal and suffering will continue for a long period of time,” Lin said in the letter, which was widely distributed across social media and confirmed by the company.

Lin said the mortgage boycott has prompted many local authorities to tighten cash withdrawals from escrow accounts, increasing liquidity pressure on property developers.

“Although we have more than 30 billion yuan ($4.14 billion) in cash on records, the vast majority of it has not been able to meet reasonable demand by companies,” the CIFI message read.

“In the coming months, CIFI’s cash flow will face unprecedented challenges.”

A source in direct contact with Lin told Reuters that Lin is under tremendous pressure, with no significant new political support on the horizon, so “it is unclear when the industry can see a glimmer of hope.”

Last week, the CIFI rating was downgraded by Fitch Ratings, which indicated lower developer buffer liquidity and higher leverage.

Problems in China’s property market worsened in August, as official data showed house prices, sales and investment plummeted, adding to pressure on the faltering economy. A number of prominent developers have defaulted on bonds, and local governments are scrambling to devise financing reforms that will allow stalled construction in new homes to resume.

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(dollar = 7.2501 renminbi)

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