China’s Renhe Says It Has Repaid 2015 Dollar Bonds Due Today

by David Yong
11:40 AM HKT; May 18, 2015

Renhe Commercial Holdings Co. repaid an offshore bond ahead of a deadline that expired Monday, avoiding default and easing concerns about worsening credit stress in China’s dollar debt market.

The Harbin, Heilongjiang-province based developer’s $78.71 million of 11.75 percent notes matured today, according to data compiled by Bloomberg. The redemption rewarded investors who held out for full payment after snubbing Renhe’s discounted bond buyback in December, a deal that Standard & Poor’s said amounted to a default.

The payment comes as a relief to China’s U.S. currency debt market following two defaults in the past month amid signs of more financial stress in the world’s second-biggest economy. Homebuilder Kaisa Group Holdings Ltd. last month became the first Chinese developer to miss interest payments on dollar debentures, while coal importer Winsway Enterprises Holdings Ltd. followed on May 8.

“The 2015 senior notes are fully repaid,” Rebecca Chan, a Hong Kong-based spokeswoman for Renhe, said via e-mail today. The bonds, sold at 99.08 cents on the dollar in 2010, last traded at 97.083 cents on the dollar on May 12, prices compiled by Bloomberg show.

Renhe’s $161.2 million of 13 percent notes due March 2016 are at 91 cents on the dollar to yield 25.952 percent. The securities were sold at 100 cents on the dollar in September 2010, according to data compiled by Bloomberg.

Next Hurdles

Those bonds, and a $400 million loan due August next year, are the company’s next major debt obligations, according to S&P. Renhe’s cash flow may be insufficient to redeem both of them next year, S&P said in a January assessment.

“It’s interesting that the company had the $78 million to repay” the notes, said Charles Macgregor, the head of Asian high-yield research at Lucror Analytics Pte in Singapore. “I suppose that augurs well for holders of the 2016 bonds.”

China’s economy grew last quarter at the slowest pace since 2009. Retail sales have cooled, with a 10 percent gain in April the least since February 2006. Policy makers have cut interest rates three times since November to stem the slowdown, as well as eased home lending rules to revive the real estate market.

High-yield bonds in China have gained 3.83 percent this quarter-to-date, on track for the best performance since the second quarter of last year, a Bank of America Merrill Lynch index shows.

S&P downgraded Renhe’s credit rating to “selective default” in January and raised it to CCC, eight levels below investment grade, after the buyback. Renhe spent $660 million to buy back its 2015 and 2016 securities at discounts of as much as 18 percent.

The tender offer was funded by a rights issue in January that raised net proceeds of HK$3.2 billion ($413 million) and bank loans arranged by Deutsche Bank AG and Industrial Bank Co., according to company filings.