Photographer: Greg Baker/AFP/Getty Images

China Ghost Town Developer May Default on Bonds Next Week

Updated on
  • Ordos City Huayan may struggle to repay principal and interest
  • Investors chose to sell back 1.14 billion yuan of bonds early

A developer from one of China’s so-called ghost towns said it’s struggling to repay bonds that are coming due next week.

Ordos City Huayan Investment Group Co., based in Ordos in the northern Inner Mongolia region, said uncertainty arose after bondholders opted for the early redemption of 1.14 billion yuan ($176.7 million) of notes on Dec. 17, according to a statement on the Chinabond website Friday. Erdos City Infrastructure Construction Investment Co., a local government financing vehicle at Ordos, provides a guarantee for the bonds, the Chinabond statement said.

China’s worst economic slowdown in a quarter century is adding stress to smaller developers even after the government allowed property companies to sell more bonds and eased restrictions on home purchases. Ordos City Huayan’s admission comes only four days after pig iron producer Sichuan Shengda Group Ltd. became at least the seventh Chinese company to renege on local debt obligations this year.

“It’s uncertain if the guarantor can bail out Ordos City Huayan’s bond,” said Zhang Chao, a bond analyst at China Investment Securities Co. in Shenzhen. “The LGFV itself is facing operation problems.”

The developer also said it may not be able to repay the 94.56 million yuan of interest due the same day.

Ordos City Huayan sold 1.2 billion yuan of 2018 bonds with a coupon rate of 7.88 percent in December 2012. The company is facing a cash shortage and hasn’t raised enough funds for the debt repayment, according to Friday’s statement. The notes dropped 8.2 percent to 85.35 yuan as of 12:48 p.m. in Shanghai, the biggest since 2013, according to exchange data.

The coal-mining city of Ordos, whose fortunes reversed as the commodity’s boom turned to bust, is grappling with a slumping Chinese property market that researcher SouFun Holdings Ltd. said has led to more than 10 “ghost towns.”

— With assistance by Judy Chen

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