Country Garden: Most exposed Asian high-yield bond funds

Eight funds available in Hong Kong and seven funds in Singapore have small exposures to Country Garden, the latest distressed Chinese property developer in the spotlight.
Country Garden: Most exposed Asian high-yield bond funds

Fund managers of several high-yield bond funds in Asia have good reason to closely monitor unfolding developments in China's property market.

Eight high-yield bond funds available for sale in Hong Kong and seven funds in Singapore have exposure to struggling developer Country Garden, according to data from funds tracker Morningstar.

The exposure, however, is quite small, ranging from 0-4% of a fund's total assets under management.

China's property sector used to account for a large share of Asian high-yield bond investments a few years ago, but that share has dwindled after turbulence in the sector more recently.

Allianz, Manulife and Fidelity funds are the most exposed to the distressed property developer among funds available in Hong Kong, while HSBC, Allianz and Loomis Sayles funds lead exposure among funds available in Singapore, according to Morningstar.

Nine of the 15 funds are exposed to Country Garden’s coupon payment due September 6, which the company is likely to miss.

The missed coupon payments by Country Garden, its deteriorating financials, and ensuing credit rating downgrades have caused the issuer’s bonds to trade at distressed levels in the secondary market, according to Arvind Subramanian, Morningstar’s senior analyst for manager research.

This list includes all funds that are in the Morningstar Asia high yield bond category and available for sale in Hong Kong. Source: Morningstar Direct

“As a result, funds which hold these bonds have already suffered a meaningful impact given the sharp fall in bond prices in recent months,” Subramanian told AsianInvestor.

Morningstar was unable to provide any information on whether institutional investors and family offices hold these funds. All these fund are available to institutional and retail investors in either Hong Kong or Singapore.

This list includes all funds that are in the Morningstar Asia high yield bond category and available for sale in Singapore. Source: Morningstar Direct



September marks two years since the problems erupted at developer China Evergrande Group -- an event that kicked offa steady decline in China's property sector.

There was a ripple effect, as Evergrande’s failure to meet bond interest payments triggered a wave of defaults across the real estate industry.

Now it's the turn of Country Garden to make investors fret although there is broad consensus that any fears of financial collapse in the sector are overblown.

The company has a grace period until September 6 to make its coupon payments.

If it fails to do so, the company might declare a default on two US dollar bonds that mature on February 6, 2026, and August 6, 2030.

Morningstar believes it is likely that Country Garden will not be able to make the payments.

Subramanian pointed out that the future impact on funds holding these bonds would depend on several factors such as timely repayment of interest or principal obligations, recovery prospects and the outlook for the sector.

“Overall, despite a slew of supportive policy measures, most asset managers remain wary of the Chinese property sector, which has been impacted by macroeconomic headwinds, slumping property sales, and issuer-specific credit events,” he said.


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