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An increasing number of Chinese property developers default on their commercial paper amid the sector-wide liquidity crunch.
More than 2,800 developers failed to repay their unsecured debt obligations on time last month, up nearly 40% from a year ago, according to a report by the China Real Estate Information Corporation (CRIC). In the period of April – July, the average monthly increase was 16.8%.
Property developers accounted for almost 68% of all companies that defaulted on commercial paper in August, up 3.1 percentage points from the previous month, CRIC said, citing data from the Shanghai Commercial Paper Exchange. Some 2,800 project companies that failed to pay bills are linked to nearly 280 real estate groups, up by 17% from a month earlier.
Developers that had already defaulted on debt payments accounted for most of the defaulted paper in August, with two firms accounting for more than 58% of all commercial paper defaults, according to the CRIC. The groups with the most default project companies include Shimao Property Holdings, Greenland Holdings, and Sunac China Holdings.
Before the ongoing liquidity crunch in the real estate sector, commercial paper used to be an important tool for developers to raise money, and had increasing rapidly in several years. As of the end of 2021, 67 listed companies in the sector had a total of 146.9 billion yuan of notes payable, according to CRIC, with compound annual growth at 38% since the end of 2016.