Another Chinese Developer Gets Liquidated As Property Bear Market Persists 

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by Tyler Durden
Tuesday, Jun 11, 2024 - 04:25 PM

Asian stocks were mostly red on Tuesday in Hong Kong (Hang Seng -1.04%) and China (CSI300 -.87%) as the Chinese property bear market deepened as Beijing's attempt to stabilize the economy wanes following yet more bad news of developer Dexin China Holdings Co. ordered into liquidation by a Hong Kong court. 

Dexin became the latest Chinese developer to be ordered to wind down, three months after a petition was filed by China Construction Bank (Asia) and a year and a half after it defaulted, according to Bloomberg. Even with a new restructuring plan approved last year, the developer, specializing in residential and commercial buildings, couldn't keep up with paying its debts. 

The Zhejiang-based developer concentrated most of its residential and commercial buildings across China's wealthy Yangtze River Delta region. As of the latest annual report, it had 64.4 billion yuan ($8.88 billion) in liabilities. 

Dexin defaulted in December 2022 with nonpayment of 9.95% senior notes due in 2022 in principal amount of $350 million. That's a "really long time ago," China Construction Bank's legal representative said in court on Tuesday. The developer's lawyer tried to argue that a small number of creditors opposed the petition and there had been attempts to negotiate. -Bloomberg

Dexin is now part of an exclusive group of defunct property developers, including Jiayuan International Group Ltd, and China Evergrande Group, that have been ordered by Hong Kong courts to enter a liquidation process. 

"This isn't the last one, either — a number of major developers, including Country Garden Holdings Co., are set for hearings in coming months to persuade judges that they are moving forward with their own debt-overhaul plans," Bloomberg noted. 

The expanding list of court-ordered liquidation of Chinese developers comes despite a broad support package unveiled by the central government in recent months. 

Goldman's James Busby wrote in a note to clients, "Weakness in the Chinese Property sector continued with worries only being exacerbated by Developer Dexin China getting a liquidation order from the HK court."

Last week, we noted the Bloomberg Intelligence gauge of Chinese developers tumbled into a bear market. Weakness persists into the new week. 

The property market downturn has been ongoing since 2021. A series of developers have defaulted on debt, many idled construction sites, plus sliding home sales, high inventory levels, and waning confidence in the Chinese population about an economic revival. 

In a recent note titled 'China Unveils A Housing Market Bailout: Here's What's In It, And Why It Is Still Not Enough,' we cited a Goldman note that underscores the need for more housing easing efforts.

Judging by the bear market in property stocks and the expanding list of court-ordered liquidations of Chinese developers, we suspect more policy support is coming.