From Bloomie:
A closely held Chinese real estate developer with 3.5 billion yuan ($566.6 million) of debt has collapsed and its largest shareholder was detained, government officials familiar with the matter said yesterday.
Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay creditors that include more than 15 banks, with China Construction Bank Corp. (939) holding more than 1 billion yuan of its debt, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.
…“Chinese developers are extremely exposed to the easy credit that is used to finance purchases and investment,” said Patrick Chovanec, the New York-based chief strategist at Silvercrest Asset Management Group LLC, which oversees $14.1 billion in asset, by phone. “When credit is reined in even slightly, it undercuts demand. This is potentially an inflection point.”
Stocks and bonds issued by Chinese real estate companies slumped after reports of Zhejiang Xingrun’s collapse added to concern that defaults are starting to mount as the nation’s economy slows and the government reins in lending.
Prices on the dollar bonds sold by Evergrande Real Estate Group Ltd., the nation’s fourth-largest developer by market value, fell 0.5 cent on the dollar yesterday, sending yields to the highest since August. Prices on Kaisa Group Holdings Ltd.’s bonds maturing in 2018 dropped to a seven-month low. American depositary receipts of E-House China Holdings Ltd., the online real estate services provider, slid 2.6 percent while SouFun Holdings Ltd. retreated for a seventh day.
As the bond re-pricing suggests, the real danger is banks pulling loans to more developers. We first visited this terrain in late 2011 and here we are again with no can-kick yet in sight.
