Fallout From Ordos Implosion Continues

The ghost city of Ordos is back in the headlines. The collapse of the city's real estate and private lending market began in 2011, but the fallout continues into 2015. Ordos is an extreme case, but only one of degree and circumstance. The pattern of speculation, private lending markets and government planning are typical of many cities in China. Ordos blew a larger bubble, fueled by natural resource prices in a resource dependent economy, which led to a twin collapse of the local economy and the real estate market. The sharp slowdown in Northeast China could turn into a wider Ordos replay should commodity prices begin another leg lower, perhaps courtesy of a Federal Reserve that hikes interest rates in a bid to head off healthcare inflation created by the Affordable Care Act.

Bloomberg: Yet Another Ghost Town in China Shows Extent of Regional Debt Crisis
Ordos City Huayan Investment Group Co., a developer whose chairman headed a group of livestock researchers, is at high risk of defaulting on 1.2 billion yuan ($194 million) of bonds if investors exercise an option to offload them in December, said Haitong Securities Co. and China Investment Securities Co. Also in the city, Inner Mongolia Hengda Highway Development Co. asked noteholders to defer rights to sell back private securities in April due to cash shortages, according to China International Capital Corp.

...Bond investors have demanded higher premiums to hold notes from the city. Elion Resources Group Co., which focuses on desertification prevention, sold 1 billion yuan of three-year AA rated debentures at 7.8 percent on May 7. That was 256 basis points higher than the average yield on similarly rated securities the same day. The yield on Ordos City Huayan’s 2018 bond has climbed this year to 9.63 percent since Pengyuan Credit Rating Co. cut the issuer rating from AA- to A and changed the outlook from stable to negative on Dec. 31.

...“Many small-city developers are running into financial trouble,” said Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. “It’s the problem Ordos faces after its property bubble burst.”

...Cities suffering from declines in fiscal revenue need close scrutiny for potential debt failures, according to Zhang Chao, a bond analyst at China Investment Securities in Shenzhen. The highest-risk areas rely on resource production like Inner Mongolia and Shanxi, and also include northeastern provinces such as Heilongjiang and Liaoning, he said.
See the prior post: Industrial Production Slowdown Accelerates In Northeast

iFeng: 港媒:房地产市场不景气 鄂尔多斯开发商面临违约

Related: Erdos property values collapse
Capital and residents flee Ordos
Ghost city Ordos: financial contagion, suicides, loss of trust, 50-90% economic collapse
Gold Is Money; Ordos "City of Debt" Residents Settle Debts With Silver and Gold; Gold for Cars and Silver for Houses

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