Beijing’s property bandage fails to staunch blood

A man and a child walk by a construction site under property developer CIFI Holdings in Wuhan, Hubei province, China February 4, 2016. Picture taken February 4, 2016. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

HONG KONG, Sept 29 (Reuters Breakingviews) - Another day, another Chinese property market selloff. This time, though, involves one of China’s healthier developers. Hong Kong-listed CIFI (0884.HK) on Wednesday confirmed that it defaulted on an onshore trust loan linked to a property development, blaming slow sales. By the next morning, panicked investors had already wiped out half of CIFI’s market value, some $765 million.

The company was one of roughly half a dozen homebuilders favoured by Beijing. As part of a government effort revealed in August, CIFI and peers like Longfor (0960.HK) and Country Garden (2007.HK) were recently allowed to issue low-cost state-guaranteed bonds. The idea was to provide support to better behaved outfits as overall financing dries up. Funds raised by Chinese developers in the year to August have slumped 25% year-on-year, per official data.

CIFI’s plight is particularly alarming. It managed to avoid defaults on any of its publicly-traded debt, and even paid an interest payment for an offshore bond due in 2024. That bond, though, rallied to 60 cents on the dollar last month, but now trades at just 28 cents. CIFI’s chairman has also flagged that the company was not able to tap its $4.1 billion of cash on its balance sheet due to government controls on its escrow accounts. The stronger parts of the property market are weakening, and fast. (By Yawen Chen)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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