(Yicai Global) July 15 -- The price of US dollar-denominated bonds issued by Chinese real estate developers of both good and poor financial standings have been tumbling across the board since the beginning of the month, fueled by investor concerns about the future outlook of China’s property market as the Covid-19 pandemic hammers sales and liquidity tightens.

On July 12, the dollar bonds of Chinese developers suffered a sweeping sell-off, affecting not only those with junk status, but also those private developers in good financial health, Yicai Global has learned.

“Foreign investors were selling indiscriminately,” a real estate bond investor told Yicai Global. “Not only low-quality, high-yield bonds crashed, all those supposedly investment-grade bonds also sank like a stone. Market pressure is even more intense this time around than it was in March, which was a peak period for debt redemption.”

“The price of many long-term, real estate bonds by companies in good financial standing have fallen to a new low of around 30 US cents,” a senior researcher in the bond market said. “And those by firms that have defaulted or rolled over their debt are now worth just a few cents.”

Most dollar bonds issued by five Chinese developers with an excellent track record, namely CIFI Group, Country Garden, Longfor Group Holdings, Seazen Holdings and Yanlord Land, saw their market prices tumble around 13 to 15 US cents in the past three weeks, with several of them dropping more than 20 US cents, according to bond research institute DM Research. The cumulative downward movement of Shanghai-based CIFI’s dollar-denominated perpetual bonds was more than 50 US cents during the period.

“Although the government has asked banks to support the property market and restore market confidence, we expect investors and banks to remain cautious and selective in their support,” said Chen Chen, a senior analyst at US credit rating agency Moody’s. “There may be more defaults in the second half, especially by developers with large amounts of foreign debt maturing and with poor liquidity.”

China’s real estate market has been shaken in recent weeks after home buyers in some 150 housing projects around the country said they will stop paying their mortgages as developers struggle to deliver their properties on time.

This has fueled concerns that banks may re-evaluate the risk of personal housing loans and future lending approvals may be more cautious. We also cannot rule out the possibility of lenders further reducing their exposure on the real estate market, an industry insider said.

Another reason behind the recent market sell-off is that potential buyers are also few and far between in a volatile market environment, resulting in extremely low liquidity. This is forcing sellers to accept lower quotations and intensifying the slide in bond prices, according to traders and market makers interviewed by Yicai.

Some USD32.6 billion in offshore bonds and USD29.9 billion in Chinese yuan bonds are due to mature in the next year, according to New York-based Moody’s.

Editors: Tang Shihua, Kim Taylor