Chinese real estate bonds plunge as Evergrande debt holders wait for coupon deadline

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An exterior view of the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 29, 2021. REUTERS / Aly Song

SHANGHAI, Oct. 11 (Reuters) – Chinese real estate bonds collapsed on Monday after a developer asked to delay a paper deadline, highlighting default fears to stalk the markets as offshore bond holders China Evergrande Group (3333.HK) were awaiting news of $ 148 million in impending debt coupons.

Expectations that Evergrande will make the semi-annual payments on its April 2022, April 2023 and April 2024 dollar notes due October 11 are slim as it prioritizes onshore creditors and remains silent on its dollar obligations.

This has left foreign investors worried about the risk of large losses at the end of the 30-day grace periods as the developer grapples with more than $ 300 billion in liabilities. Read more

In the latest sign of liquidity stress facing Chinese developers, Modern Land (China) Co Ltd (1107.HK) on Monday asked investors to push back the maturity date of a $ 250 million bond from the 25th. October to January 25 in part “to avoid any potential default.”

Modern Land’s April 2023 bond with a 9.8% coupon dipped more than 25% to 32.25 cents on the day, according to financial data provider Duration Finance, while the company’s shares fell by more than 2%.

The obligations of other real estate developers were also under pressure. Ronshine China Holdings bond (3301.HK) from October 2022 fell 12.9% to 52.187 and Guangzhou R&F Properties Co bond (2777.HK) from February 2023 fell 8.37% to 55.233.

“It’s a dire day. Even investment grade bonds are trading low at 80,” said Clarence Tam, fixed income portfolio manager at Avenue Asset Management in Hong Kong.

“We believe this is due to global cash outflows. It is very rare to see minus 10 points… these IG grade bonds are generally liquid. And basically, we are concerned that onshore mortgage management is affecting hard cash. cash flow from developers. “

In equity markets, the Hang Seng Property and Construction (.HSCIPC) sub-index was down 0.4% against a nearly 2% rise in the broader index. (.HSI)

Latest drop in real estate bonds follows the massive sell-off of Chinese high-yield dollar debt last week, especially after small developer Fantasia Holdings Group Co (1777.HK) missed a payment deadline of $ 206 million in debt on the international market on October 4.

The option-adjusted spread of the ICE BofA Asian Dollar High Yield Corporate China Issuers (.MERACYC) index was last recorded at 2,069 basis points on Friday evening US time, its level on highest ever recorded.

COMMERCIAL ADJUSTMENT

Fantasia Group China Co, whose majority shareholder is Fantasia Holdings, announced on Monday that it will adjust the trading mechanism of its Shanghai-traded bonds following credit downgrades at China Chengxin International Credit Rating Co (CCXI), and said his parent company had formed an emergency group. to resolve liquidity issues.

“We believe that policymakers have zero tolerance for the emergence of systemic risk and aim to maintain a stable housing market, and political support could be provided if the deterioration in levels of property activity worsens,” said said Kenneth Ho, head of Asia credit strategy at Goldman Sachs. .

“Having said that, we also believe that policymakers don’t want too much stimulus, and their longer-term goal is to deleverage the real estate industry.”

Harbin, the capital of northeastern Heilongjiang province, has become one of the first cities in China to announce measures to support real estate developers and their projects, which have been rocked by the Evergrande crisis. Read more

The cash-strapped real estate developer’s contagion problems and worries have sent shockwaves through global markets and the company has already missed payments on dollar bonds, with a combined value of $ 131 million, which were to be paid on September 23 and 29.

Advisors to offshore bondholders said on Friday they want greater transparency from Evergrande and are also asking for more information on its plans to sell some companies. Read more

Trading in shares of Evergrande, as well as its Evergrande Property Services Group (6666.HK), has been halted since October 4 pending an announcement of a major deal.

Reporting by Andrew Galbraith Editing by Shri Navaratnam

Our standards: Thomson Reuters Trust Principles.


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