As the date for troubled Chinese real estate giant Country Garden’s coupon payment draws nearer — a payment of which the company is likely to default — six funds for sale in Singapore are stuck with the securities, according to Morningstar.
The firm notes that Country Garden has a grace period of until September 6 to pay its coupon liabilities. If it fails to make the payments, which Morningstar thinks is likely, the company will declare a default on its two US dollar bonds that mature on February 6, 2026 and August 6, 2030.
The funds that own the near-default Country Garden issues include PIMCO GIS Asia High Yield Bond fund, Fidelity Asian High Yield fund, Allianz Dynamic Asian High Yield Bond and Goldman Sachs Asia High Yield Bond.
Despite a relatively lower exposure to China property bonds, Country Garden is the second largest position in the sector for PIMCO GIS Asia High Yield Bond fund, Morningstar points out.
The portfolio has an exposure of 1.23% to Country Garden, from a total of eight issues. The US$2.8 billion fund owns both bonds pending coupon payments due September 6, the firm adds. The holdings represent a weightage of 0.16% as at end-July.
Meanwhile, Goldman Sachs Asia High Yield Bond fund owns a total of six bonds issued by Country Garden, or 0.91% of net assets in total as at end-July. The affected portion was 0.06% of net assets.
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That said, Asia bond funds have minimal exposure to Country Garden bonds. There are 11 funds within Morningstar Asia high yield bond category available for sale in Singapore with minimal exposure to Country Garden bonds, including Manulife Global Fund Asia Total Return fund, Manulife Global Fund Sustainable Asia Bond fund, HSBC GIF Asia ESG Bond fund and T. Rowe Price Asia Credit Bond fund.
Moving forward, the China property sector remains out of favour for fund managers — the tempered sentiment toward China and its once all-important property sector continues, despite a slew of supportive policy measures, Morningstar highlights.
“For now, Chinese high-yield issuers are resorting to private debt markets, onshore bonds, bank loans and the disposal of non-core assets for their funding needs while most asset managers remain cautious,” says Morningstar senior manager research analyst Arvind Subramanian.
