How has the uncertainty surrounding Dalian Wanda's $400mn bond repayment impacted the high yield?

The uncertainty surrounding Dalian Wanda's $400mn bond repayment has sparked volatile trading in Asian high-yield bond markets. On speculation that investors would be repaid, the debt saw a surge of about 46% to 90 cents on the dollar, just days after it had collapsed due to investor concerns about the group's cash availability. This has added to unease across the market for high-yield dollar bonds in Asia, with the average price of dollar junk bonds from Chinese issuers dropping to about $0.68 on the dollar, a seven-week low.

The situation is one of several issues driving turmoil in international Chinese property bonds, with concerns over developers like Sino-Ocean Group and Shui On Land also contributing to the unease. Rating agency S&P downgraded Dalian Wanda Commercial Management, the subsidiary responsible for the bonds, to triple C on "non-payment risk," estimating that the company currently has only $200mn, half the required funds, available. The lack of communication from Dalian Wanda despite widespread reports of the shortfall has hurt investor confidence in the sector.

Activity in Asia's high-yield market has shrunk due to issues with Chinese property developers, which were previously the biggest borrowers. Dalian Wanda's situation is particularly notable as the company issued new bonds worth $800mn earlier in the year, becoming the first Chinese real estate business to do so and sparking hopes of a turnaround.

However, those bonds are now trading between 20 and 30 cents on the dollar, reflecting a lack of market access despite government efforts to boost confidence and encourage new borrowing.

The uncertainty surrounding debt payments echoes the 2021 defaults of developers like Kaisa and Evergrande. As a result of these challenges, the chapter in which high-yield developers could borrow is now considered "closed," and the property market in Asia is facing prolonged difficulties.

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