Modern Land becomes latest Chinese developer to miss a bond payment

Modern Land has become the latest Chinese developer to miss a payment on a dollar bond in a sign of continuing turmoil in the country’s property sector despite Evergrande, its most indebted group, narrowly avoiding a potential default last week.

Modern Land said that principal and interest payments on a bond worth $250m were “not met” by a Monday deadline. Earlier this month the company had asked for a three-month extension to the maturity on the bond, a proposal it later withdrew, saying its liquidity issues had not been resolved.

The company blamed the missed payment on “unexpected liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment, the real estate industry environment and the Covid-19 pandemic”.

Investors have been alert to potential bond defaults in the sector, with Evergrande making a last-minute payment on an offshore bond last week.

China’s property sector, which has been a crucial engine for growth and rising living standards, has also been hit by signals from Beijing in recent months that the government would prioritise reducing debt over economic growth.

Evergrande originally indicated it might miss bond payments in August and later missed a repayment deadline on an offshore bond, triggering a 30-day grace period before a formal default. The company made a last-minute payment last week but still faces a number of deadlines in the coming weeks.

Fantasia and Sinic, two other Chinese developers, have defaulted on their debt, while fresh data last week showed the overall industry contracted in the third quarter.

On Monday, Xinhua, the country’s official news agency, published an interview with an unnamed “person of authority”, believed by some analysts to be vice-premier Liu He, which called for China to take measures to “reduce the reliance on real estate and debt” and reiterated the government’s intention to stamp out property market speculation.

“At present, a small number of property businesses have exhibited the risk of debt defaults,” the interviewee said. “The reason lies in the poor management of the businesses, which have not yet been able to prudently operate in line with the changes in the market situation.”

On Saturday, the National People’s Congress, China’s rubber-stamp parliament, approved measures to expand trials of a tax on residential and commercial properties in cities.

Analysts said the move could alter China’s economic model away from its heavy dependence on real estate, reshaping government revenue streams and deterring speculation.

The Hang Seng Mainland Property index fell as much 5 per cent on Tuesday morning, adding to losses of more than 26 per cent in the past six months. The Hang Seng Property index, which tracks Hong Kong-listed developers, was down as much as 1.9 per cent.

In a note on Tuesday, Cheng Wee Tan, senior equity analyst at Morningstar, called the new property tax “untimely”, adding that the sector was already facing “heavy policy headwinds”.

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