Chinese property developer near bankruptcy with debt exceeding $500 mln - report

SHANGHAI, March 18 Mon Mar 17, 2014 9:50pm EDT

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SHANGHAI, March 18 (Reuters) - A Chinese property developer owing 3.5 billion yuan ($566.52 million) to banks and individuals is teetering at the edge of insolvency, and its owner has been detained for illegal fund-raising, domestic media reported, citing local officials.

Zhejiang Xingrun Real Estate Co, based in Fenghua in eastern Zhejiang province, owes 15 domestic banks 2.4 billion yuan, state-owned China News Services reported.

The company illegally raised most of the remaining funds from 98 individual investors, according to the report on Monday. Private fundraising is common but illegal in China.

"As far as we know, this is the largest property developer in recent years that is at risk of bankruptcy," wrote Zhang Zhiwei of Nomura Securities in a research note. "We believe more property developers will face similar pressures as transaction volumes slow and cash flow conditions tighten."

Bankruptcies and bank loan defaults in China are common, but the size of Zhejiang Xingrun's outstanding loans, and the fact that the near-bankruptcy troubles follow shortly after China's first public bond default on March 7, is likely to rattle investors.

Calls to Zhejiang Xingrun seeking comment were not answered.

China's red-hot property market has shown signs of losing steam since late 2013 as local governments took further tightening measures and banks gradually tightened lending to this sector.

The March 7 bond default was followed shortly by instructions from banking regulators to Chinese banks ordering them to reduce lending to industries in overcapacity by 20 percent. ($1 = 6.1781 Chinese Yuan) (Reporting by Pete Sweeney; Editing by Ryan Woo)

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