Developer China South City stock sinks 20% in Hong Kong after warning of multiple bond defaults

The Shenzhen-based company tumbled to HK$0.169 at 9.50am local time in Hong Kong from HK$0.212 on Friday as trading resumed after the Lunar New Year break. The slump extended the stock’s loss over the past 12 months to about 70 per cent. Sales had been below expectations and cash flow was only sufficient to fund daily operations, it said.

The cumulative effect of China’s crippled property market has put an increasing strain on the company’s working capital, it said. Since 2022, the company has taken measures to extend the maturity date of four US dollar-denominated bonds several times.

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However, China South City said its operations and financial situation have not yet sufficiently improved and that it would not be able to make the mandatory redemption payment on February 9 with respect to notes maturing in October 2024, according to an exchange filing on Friday.

The company also said it would not be able to make the interest payments on other bonds due on February 12 with respect to its April 2o24 bond, which would lead to a default on March 13.

China South City said the defaults could lead to failure of other payment obligations. This would “have a significant material adverse effect on our business, operations and financial condition, including possibly insolvency or other forms of restructuring,” the company said on Friday.

The developer added it was also considering different options, including consent solicitation, schemes and exchange offers to address its financial woes.

China South City, which is backed by the Shenzhen local government, runs integrated logistics and wholesale shopping centre operations in several mainland Chinese cities including Shenzhen, Xian, Harbin and Zhengzhou. It listed on the main board of the Hong Kong stock exchange in 2009.

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The company had failed to garner enough support to restructure four dollar-denominated bonds maturing in April, June, October and December this year with a combined face value of US$1.11 billion, according to an exchange filing in December.

However, the company had averted a default on an offshore debt after winning consent from creditors to extend the maturity of a US$235 million note maturing in July by 37 months to August 2027 while reducing the annual coupon by half to 4.5 per cent, it said in the same filing.

The firm sold US$8.4 million face amount of China South City notes on the open market for US$3.8 million from February 2 to 8, according to an exchange filing on February 8. As a result, Wang On Group expects to incur a HK$32.9 million (US$4.2 million) loss for the financial year ending March 31.