By Andrew Galbraith

SHANGHAI, (Reuters) – In October as a liquidity crisis in China’s property industry wreaked havoc on developers’ bonds, a group Chinese finance professionals met up via WeChat to share their money and purchase the unsold debt.

First target: a bond of 5.3% in January 2022 issued by Yango Group. This bond traded for around half its face price and had a yield of more than 400%.

According to one source, the pooling of $50,000 per punter was possible to increase their chances to win twice as much money. However, there is a possibility that they will lose 50%.

Yango (whose Chinese name is Sunshine City) was hit hard by credit ratings downgrades due to its weak access to financing. However, Yango would continue to make agreements with investors for additional debt payments in order to avoid default.

In messages seen by Reuters, the organiser stated that $100,000 was secured and that $200,000 would be READY GO if they collect it. The group collected over $300,000. Less than one hour later, on October 22, organizers urged calm before pitching another Greenland Holdings bond group purchase.

But, since October’s WeChat group purchase, the Yango unit bond for January 2022 has fallen over 50%. Additionally, the company extended its due date by one year.

While concerns about the payment ability of Chinese developers persist, pushing the spread (or risk premium) on their most risky dollar debt to new records, investors from China and around the world see the same opportunities in Chinese discounted debt.

After the sale of investment-grade names (IG), the market has been flooded with bargains. This was in response to speculation that regulators might relax property restrictions to prevent a collapse across the sector.

Although developers continue to make missed or late payments, there have been a few narrow escapes from China Evergrande Group’s defaults that helped soothe nerves.

Shaw Yann Ho from J.P. Morgan Asset Management said that “the widening IG spreads offers select opportunities for investors, to gain exposure to quality issuers,” and added that there were also some more capitalised state-owned companies in a position of snapping up distressed assets within the sector.

Recent rating downgrades, such as S&P Global (NYSE:)’s move to relegate Shimao Group Holdings to speculative grade, have also helped to clarify risks and could serve to stabilise investment-grade spreads, investors say.

Ho suggested that support policies would be beneficial to investment-grade businesses, such as quicker mortgage approvals and continued infrastructure building efforts from local governments.

As China’s economy struggles under the new COVID-19 epidemics and severe power shortages, hopes for additional support are growing.

However, policy sources suggest that the central bank of the country will be cautious about loosening its monetary policy. Authorities are likely to remain firm regarding policies to limit excessive borrowing by property developers.

This could cause trouble for Chinese developers, with Chinese bonds maturing over $90 trillion in the coming year according to Refinitiv Data.

Edward Chan, director, corporate ratings at S&P Global, noted that all of the nearly 30 recent S&P rating actions on Chinese issuers had been negative. S&P has forecast continued market volatility in Chinese debt into 2022, with large debt maturities pushing more offshore defaults.

Hayden Briscoe from UBS Asset Management Asia-Pacific Fixed income stated that investors will lose money if default rates are around 20%. This is despite the fact that he’s seen money flow into this sector by global high-yield fund investors.

James Wong (portfolio manager, GaoTeng Global Asset Management Ltd) predicted a rough ride. However, he said that although he feels the market is very close to bottom, the lack of liquidity in the market could cause market moves up or down.