China property shares suddenly plunge on spin-off plan, bondholders become scared birds

Bloomberg reports that lately, anything scares China’s dollar bond market, especially when it comes to real estate companies. (By Derek Fong)

When shares of Jianye Property Co. resumed trading on the Hong Kong exchange Thursday afternoon, they sank 43 percent. The trigger was expected – from Thursday, new shareholders will no longer be eligible to join the newly spun-off Centaline Construction.

Still, the sudden plunge came as a shock to bondholders. The developer’s 7.65 percent bonds due 2023 fell 3.3 cents to 94.1 cents, according to prices compiled by Bloomberg, and at one point hit a record for the biggest drop.

China Huarong Asset Management Co. is one of the biggest issuers in China’s dollar bond market, but investors have been concerned about the company’s future for much of the past six weeks. While investors’ negative sentiment appears to be receding, concerns rose again this week after Hong Kong media reported that regulators opposed the company’s restructuring plan.

Investors are also sensitive to sudden price changes for property developers, which are among the companies most likely to be affected by the government’s new move to deleverage. Beijing’s earlier “three red lines” directive, which imposes stricter rules on debt-ridden real estate companies raising new debt, has investors worried about weaker borrowers, including those not formally included in the plan.

By the 4 p.m. close, shares of Kenyon Properties had trimmed their losses to 24 percent, and bond prices had stabilized.