Hong Kong’s Wang On Group disposes of notes in indebted developer China South City, warns of US$4.2 million annual loss

Hong Kong property developer Wang On Group has sold notes it held in indebted mainland Chinese developer China South City Holdings in the open market for about US$3.8 million, according to the company.

The disposals were conducted from February 2 to February 8, and the aggregate principal amount of the China South City notes disposed of was about US$8.4 million, Wang On said in a filing with the Hong Kong stock exchange on Thursday.

The aggregate consideration of US$3.8 million represents around 45 per cent of the aggregate principal amount of the China South City notes being disposed of, the filing said.

As a result of the disposal, Wang On Group expects to see a loss of about HK$32.9 million (US$4.2 million) in the financial year ending March 31, it said.

“Taking into account the aforementioned financial effects of the present disposals and the recent performance of the price of the China South City Notes, the board is of the view that the present disposals provide the group with a good opportunity to realise their investments in the China South City Notes, and to reallocate resources for general working capital and other investment opportunities when they arise,” Wang On Group said.

Shares of Hong Kong-listed China South City tumbled 9.4 per cent to HK$0.21 on Friday, extending the total loss over the past 12 months to 62.8 per cent.

The state-backed company is one of many developers in China that fell into distress amid the Covid-19 pandemic, slumping home sales and the Chinese government’s moves to tighten the reins on the bubble-prone real estate sector.

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China South City issued a notice to the Hong Kong stock exchange in December that it would not have enough cash to pay interest on its foreign-currency debt as it struggles to win support from creditors to restructure five bonds totalling US$1.35 billion, maturing in 2024.

The company averted a default on an offshore debt after winning consent from creditors to extend the maturity of a US$235 million July 2024 note by 37 months to August 2027 while reducing the annual coupon by half to 4.5 per cent.

However, it failed to garner enough support to restructure four other dollar-denominated bonds maturing in April, June, October and December this year with a combined face value of US$1.11 billion, the company said in a filing in December.