(Yicai Global) Aug. 11 -- Shares of Longfor Group Holdings rebounded after the Chinese developer quashed a rumor that it had overdue commercial paper. More than HKD20 billion (USD2.6 billion) was shaved off its market cap yesterday following the rumor and a UBS report that said Longfor and three other Chinese builders have weak sales and high cash burn rates.

After surging by as much as 11 percent this morning, Longfor [HKG: 0960] ended 5.7 percent higher at HKD22.10 (USD2.82). The stock plunged by a record 16.4 percent yesterday.

Longfor’s commercial paper due has been settled without any deferred payment, the Beijing-based builder said in a stock exchange filing late yesterday, adding that the company is operating normally and has enough available cash reserves. It has also been actively repurchasing corporate bonds in the secondary market, Longfor said.

Data on the Shanghai Commercial Paper Exchange’s platform also confirmed that the company does not have any overdue commercial paper.

UBS’s report said Longfor and three other developers, including Midea Real Estate Holding and Country Garden, had negative free cash flow in the first half, equal to 11 percent to 41 percent of their idle cash balances last year. UBS cut its rating on Longfor to neutral and its target price for the stock to HKD25.70 (USD3.28).

Longer has long been regarded as a sound private developer, and the company’s debt indicators are stricter than the minimum regulatory requirements, so industry insiders were taken aback by yesterday’s plunge.

Regulators have identified Longfor and other private builders, including Midea Real Estate and Country Garden, as model businesses, and credit protection tools support their bonds. On July 5, Longfor issued CNY1.7 billion (USD250 million) of domestic bonds and has no debt due this year.

UBS also noted that investors are concerned about the sustainability of the cash drain at the four companies. The firms have to increase their monthly contract sales by 11 percent to 16 percent in the second half from the first if they want to restore cash flow to a beak-even point, UBS said.

In the six months ended June 30, Longfor had CNY56.5 billion (USD8.34 billion) in contracted sales. In July, the figure was CNY11.9 billion, up 26 percent from the monthly average over the first half.

Shares of Country Garden [HKG: 2007] gained 2.2 percent today to finish at HKD2.38 (30 US cents) apiece, after plunging 7.2 percent yesterday. Midea Real Estate [HKG: 3990] ended little changed at HKD8.44. Its stock fell 5.3 percent yesterday.

Editor: Futura Costaglione