(Bloomberg) -- A Chinese builder of villa apartments and high-rise homes set amid landscaped gardens is facing mounting concerns about its longer-dated debt.
Agile Group Holdings Ltd.’s dollar bonds maturing in August are trading above 80 cents on the dollar, with sentiment buoyed by recent loan repayments. However, investors are pricing in a significant risk of nonpayment further down the line. Notes maturing in 2025 and 2026, as well as Agile’s perpetual debt, are no higher than 40 cents according to Bloomberg-compiled data. Shares, meanwhile, hit the lowest since 2009 this month.
Moody’s Investors Service warned when downgrading the developer last week that its liquidity “will remain inadequate” to deal with “sizable debt maturities and its weakening property sales” over the next 12 to 18 months without new external financing or asset sales.
What’s the company?
Founded in 1992, Guangzhou-based Agile focuses on the Greater Bay Area that includes Guangzhou and Hong Kong as well as the Yangtze River Delta centered by Shanghai, according to its annual report. It is China’s 28th-largest builder by contracted sales so far this year and ended 2021 with land in 84 cities.
Agile also has four overseas projects, including one in San Francisco, and owns a 54% stake in property manager A-Living Smart City Services Co. That company went public in Hong Kong four years ago and its shares are slightly below their initial public offering price, putting its market capitalization at $2.1 billion.
Prices of Agile’s longer-term debt show investor doubts about the firm’s future ability to service its borrowings. Annual revenue fell for the first time in at least a decade last year, occurring as presales in the sector started falling, property prices declined and potential buyers worried whether cash-strapped builders could finish projects.
That’s despite confidence in Agile’s short-term credit health being boosted on word it paid off the equivalent of $486 million of loans. The industry has been wracked by a record pace of public-bond defaults, most recently fourth-largest builder Sunac China Holdings Ltd., and many other firms seeking payment extensions.
Among those that delayed the release of audited results, Agile remained profitable for 2021 even as gross margin dropped to a 6-year low, according to Bloomberg-compiled data.
“Although the company has been making timely debt repayments to date, its liquidity is pressured amid weak contracted sales and a lack of access to external funding,” Leonard Law, senior credit analyst at Lucror Analytics, wrote in a May 18 research note. He also said Agile’s ability to make upcoming debt payments may hinge on further asset disposals.
Why does it matter?
A potential payment failure from Agile would showcase how difficult it is for private-sector developers to survive the current cash crunch and sales slump without regulatory assistance. Multiple efforts have been announced in recent days to bolster the industry without looking to add leverage to it.
Property firms have been at the center of debt worries in China for more than a year, leading a record pace of defaults. Developers account for all but one of Chinese issuers’ missed offshore-bond payments in 2022, according to Bloomberg-compiled data.
Meanwhile, Agile isn’t first in line for potential government-driven support nor is it deemed strong or big enough to be among the developers encouraged to sell debt with credit protections. Most junk-rated builders like Agile have been unable to access the offshore debt market for much of the past year as yields have surged above 20%, closing one refinancing avenue.
What does the company say?
Agile “is committed to centralizing its resources” on property development, the company said in its annual report. It sold properties including hotels, malls and apartments last year. It’s reached a series of divestiture deals in 2022 with China Conch Venture Holdings Ltd. worth a combined 1.8 billion yuan ($270 million).
In response to investors’ worries on hidden debt, Agile told investors it planned to refrain from issuing private-placement bonds, according to a Debtwire report in October.
The company didn’t immediately comment Tuesday about its debt.
What do analysts say?
The builder’s unrestricted cash was nearly halved last year to 22.8 billion yuan, and Moody’s said that may have fallen further in the first quarter of 2022, when internal resources were used to pay matured debt.
CCB International Securities Ltd. analysts including Lung Siufung wrote earlier this month that Agile is “under considerable financial stress even if one is only counting on-balance-sheet debt.”
What are traders watching for next?
Agile has $1.9 billion of bonds and loans still to mature this year, according to Bloomberg-compiled data, including $600 million for the August dollar notes and $224 million for a July onshore bond. Investors are also seeking signs a that an ongoing home-purchase slump is easing; Agile’s presales through April were down 50% from the same period in 2021.
Meanwhile, the company’s asset-sale effort is “casting a shadow over its longer-run business diversification” push, Bloomberg Intelligence analysts including Kristy Hung wrote in a research report this month. Property development accounted for 80% of Agile’s 2021 revenue, versus 87% a year earlier, according to Agile’s annual report.
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