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Chinese developer Yango Group proposes bond swap to avoid ‘imminent’ default

The extreme dislocation in the market for junk bonds of Chinese companies has put another developer on the brink of default.

On Monday, Yango Group Co. asked international investors to swap $747 million of dollar debt for new bonds, blaming a shutdown of its usual financing channels for the cash crunch.

Last week, the heavily indebted China Evergrande Groupavoided default for a second time by making an overdue interest payment on dollar bonds, The Wall Street Journal reported. But other smaller rivals have failed to repay investors as promised, with Fantasia Holdings Group Co. and Modern Land (China) Co. among those that have recently defaulted.

The Shenzhen-listed Yango Group said the exchange was part of its efforts to “improve our liquidity, preserve options to stabilize our operations as a going concern, and avoid imminent payment defaults and potential holistic restructurings of our debts and business operations.”

It is offering to exchange three sets of bonds for new debt due September 2022 with a 10.25% coupon. Investors will also get $25 in cash for every $1,000 in face value of bonds they exchange.

The offer covers bonds due in January and March, as well as bonds due in February 2023, which have a put option allowing investors to sell them back to the company this month. In addition, the company is seeking consent from holders of other bonds to amend their terms, for a smaller fee.

Tighter government policy, credit issues and deteriorating consumer sentiment have temporarily shut down “various refinancing venues for the sector and put enormous pressure on our short-term liquidity,” Yango Group said.

Many developers are struggling to adapt to an era of tighter credit and falling home sales, and a steep selloff in the market for Chinese junk bonds has made it impossible for some to refinance their debt payments by issuing new dollar bonds.

A Yango Group bond that matures in 2024 was trading at less than 20 cents on the dollar Monday, according to Tradeweb. As of Friday, a property-heavy ICE BofA index of Chinese dollar junk bonds was yielding nearly 22%.

Yango Group, whose Chinese name means Sunshine City, was among China’s top 20 developers by contracted sales last year, according to Fitch Ratings. In recent years, the company has ventured into what it described as green and smart residential projects. It has total debt of about $13.7 billion, according to FactSet.

Fitch last week downgraded its speculative-grade rating on Yango by two notches to B-, and said the developer’s “access to onshore and offshore capital markets has weakened significantly” since the end of September.

Yango’s third-quarter revenue fell 18% compared with last year, it said in its Monday filing, to about 11.4 billion yuan, the equivalent of $1.78 billion.

Credit-rating companies classify some bond swaps as “distressed exchanges,” which they consider to be a type of default. Distressed exchanges typically help a company avoid a formal default while switching investors into less financially attractive securities. As of Monday afternoon in Hong Kong, none of the major rating companies had published an opinion on Yango Group’s proposal.

Modern Land proposed an exchange last month, before canceling that plan and defaulting on a maturing bond.

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