Chinese developer bonds, stocks hit again by Evergrande contagion worries

SHANGHAI, Oct. 13 (Reuters) – Chinese real estate stocks and bonds continued to decline Wednesday after China Evergrande Group (3333.HK) missed a third round of interest payments on its dollar bonds in three weeks and warned others of default.

As the clearest sign of global investor concerns about expanding debt contagion, the option-adjusted spread of the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) rose to a new all-time high of 2,337 basis points on Tuesday evening US time.

On Wednesday morning, data from the Shanghai Stock Exchange showed that onshore bonds from developers Shanghai Shimao Co Ltd (600823.SS) and Country Garden Properties Group were among the biggest losers of the day, falling between 1% and 4.2%.

A sub-index that tracks A-shares of real estate companies (.CSI000952) fell 1.58% versus a 0.31% increase in the blue-chip index CSI300 (.CSI300).

Hong Kong markets were closed on Wednesday morning due to a typhoon that struck the city.

Evergrande failed to pay nearly $ 150 million worth of coupons on three bonds due Monday, after two other missed payments in September. While the company has not technically defaulted on these payments, which have a grace period of 30 days, investors expect a long and drawn-out debt restructuring process. Continue reading

The company’s main entity, Hengda Real Estate Group Co, faces an onshore coupon payment of 121.8 million yuan on October 19, and Evergrande has another bond coupon of $ 14.25 million due on October 30 . Continue reading

The debt pressure goes way beyond Evergrande. Chinese property developers have high yield dollar bond coupons worth $ 555.88 million this month and nearly $ 1.6 billion due before year end

Evergrande’s medium-sized rival Fantasia (1777.HK) has already missed a payment, and Modern Land (1107.HK) and Sinic Holdings (2103.HK) are trying to postpone payment deadlines, which most likely would still be classified as late payment by the major rating agencies.

“These stories have challenged the notion that Evergrande is unique,” Capital Economics analysts wrote in a note.

While China’s policymakers are likely to be able to avoid a “doomsday scenario”, the overdone real estate sector will continue to weigh on the world’s second largest economy, they said.

“Even after an orderly restructuring of the hardest hit developers with minimal contagion to the financial system, construction activity would almost inevitably slow down significantly.”

The IMF said Tuesday that China was in a position to address the problems associated with Evergrande’s debt, but warned that an escalation in the situation could lead to wider financial stress. Continue reading

Reporting by Andrew Galbraith; Adaptation by Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.


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