TAHOE GROUP: Misses Repayment on $228 Million Bond

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South China Morning Post reports that Tahoe Group failed to repay investors of a domestic bond, in a sign of increasing financial strain on the mainland’s aggressive home builders as the coronavirus pandemic exacerbated a liquidity crunch.

SCMP relates that the Shenzhen-listed company was unable to make payment for bond principal and interest worth CNY1.6 billion (US$228 million) due on July 6 “despite efforts to raise funds in many ways”, Tahoe Group said in a stock exchange filing on July 7. The bond, with a face value of CNY1.5 billion, was sold in July 2017 with an annual coupon of 7.5 per cent.

“Due to the impact of an overall downward-trending property sector and the coronavirus pandemic, the company’s inventory sell-through rate has fallen, and the sales prospect has worsened,” the Fujian-based developer said, SCMP relays.

While most of China’s real estate sector has gradually recovered from the shock of the Covid-19 outbreak, some of the highly-leveraged players in and outside the industry are still struggling to restore their cash flow. The world’s second-largest bond market saw a 40 per cent jump in missed corporate bond repayments totalling CNY64 billion this year through May, SCMP discloses citing Wind Information.

Tahoe Group is facing a liquidity squeeze caused by a large amount of debt at high financing cost, with the debt load maturing in a concentrated period of time, it said. It has borrowed massively from investment trust companies and had CNY23.6 billion in debt past due as of June 12, it said in the stock exchange filing, SCMP relays.

It is the largest Chinese developer to have defaulted on a bond repayment so far, the report states. Its ranking has slipped to 42nd in 2019 from 20th in 2018, according to industry consultancy China Real Estate Information Corporation. Its sales plunged 44 per cent in the first half this year to CNY25.4 billion from a year earlier, CRIC estimated.

SCMP says the group’s financial problem has not only upset creditors. Hundreds of buyers of its pre-sold flats across the nation have staged protests outside its sales centres after construction stalled, fearing that the developer will run out of cash to complete its projects.

This week’s bond delinquency is likely to foreshadow more troubles later this year as the developer comes up against a wall of debt maturity, the report notes.

About Tahoe Group

Tahoe Group Co., Ltd operates real estate development businesses. The Company provides house loans, housing renovation, housing loans, real estate brokerage, property management, and other services. Tahoe Group also operates hotel management, investment management, and other businesses.

As reported in the Troubled Company Reporter-Asia Pacific on May 18, 2020, Fitch Ratings downgraded China-based homebuilder Tahoe Group Co., Ltd.’s Long-Term Foreign-Currency Issuer Default Rating and senior unsecured rating to ‘CC’ from ‘CCC+’. The Recovery Rating on its senior unsecured rating is ‘RR4′.

The downgrade follows signs of constrained liquidity at various operating subsidiaries and weaker access to funding from non-bank financial institutions. A lawsuit by Huaneng Trust, a substantial lender that Tahoe has cooperated with for years, suggests that the weakened funding access is not limited to smaller NBFIs. Fitch believes Tahoe faces material near-term refinancing risks, especially on a CNY1.5 billion medium-term note due July 5, 2020.

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