China real estate shares, bonds slump on report of CIFI default

© Reuters. FILE PHOTO: Unfinished apartment buildings stand at a residential complex developed by Jiadengbao Real Estate in Guilin, Guangxi Zhuang Autonomous Region, China September 17, 2022. REUTERS/Eduardo Baptista/File Photo

SHANGHAI (Reuters) - Investors dumped shares and bonds of Chinese property developers on Wednesday, after a media report that CIFI Holdings (Group) Co had defaulted, adding to worries over the crisis-stricken real estate sector.

Hong Kong-listed shares of CIFI Holdings tumbled 26% in morning trading to a record low, after credit intelligence provider Reorg reported that the Chinese developer had missed payment on certain non-standard debt.

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

The share slump, which also came after CIFI's chairman predicted "unprecedented" liquidity stress ahead, triggered savage sell-offs in the sector.

An index tracking mainland developers listed in Hong Kong tumbled more than 5% to record lows.

In Shanghai, bonds issued by property firms including CIFI Holdings, Sunac Real Estate and Gemdale Corp were among the biggest losers. The Shanghai Stock Exchange later said it was suspending trading in a CIFI bond due to abnormal fluctuations.

The panic selling, which weighed on an already bearish market, reflects lingering investor pessimism toward the property sector despite a slew of measures by Beijing to aid the sector.

It also shows markets doesn't expect fresh property stimulus to be announced during or immediately after the 20th Communist Party Congress to be held from Oct. 16.

CIFI Holdings missed payment of debt under a project company known as Tianjin Xingzhou Real Estate Development Co, Reorg reported, citing sources.

In a letter to employees dated Sept. 27, CIFI Chairman Lin Zhong said the company's priority now is to survive, as property sales in China remain sluggish amid COVID-19 outbreaks, an economic slowdown, and a morgtage boycott.

"Hardship and ordeal will persist for quite a long period of time," Lin said in the letter, which was widely distributed via social media and confirmed by the company.

"In the coming months, CIFI's cash flows will meet unprecedented challenges."

A source with direct contact with Lin told Reuters that Lin is under immense pressure, as there's no fresh, big policy support in sight, so "it's unclear when the industry can see a gleam of hope."

Last week, CIFI was downgraded by Fitch Ratings, which cited the developer's declining liquidity buffer and higher leverage.

Woes in China's property market worsened in August, with official data showing home prices, sales and investment all falling, adding pressure on the sputtering economy. A number of leading developers have defaulted on bonds.