Looming Evergrande bond coupon payments intensify contagion fears (updated)

Modern Land (China)

12/10/2021 05:05

(Adds market reactions, other details)
    By Clare Jim and Andrew Galbraith
    HONG KONG, Oct 12 (Reuters) - As China Evergrande Group
 3333.HK  looks set to miss its third round of bond payments in
three weeks, markets remain on edge over contagion fears
involving other property developers as a wall of debt payment
obligations come due in the near-term.
    A total of $38.8 billion offshore bonds issued by 40 Chinese
developers will be maturing from October to end of 2022,
according to brokerage CGS-CIMB, with the next peak of $6.2
billion in payments coming up in January.
    The deadline for Evergrande's $148 million of coupon
payments was 0400 GMT Tuesday, but bondholders hadn't received
anything by end of Asian trading on Monday. Markets expect the
distressed developer is likely to miss payments again, following
two other payments it missed in September.  urn:newsml:reuters.com:*:nL4N2R722V
    "We see more defaults ahead if the liquidity problem does
not improve markedly," said CGS-CIMB in a note, adding
developers with weaker credit rating are having difficulty in 
refinancing at the moment.
    Trading of high-yield bonds remained soft on Tuesday
following a rout in the previous session on fears about
fast-spreading contagion in the $5 trillion sector, which
accounts for a quarter of the Chinese economy and often is a
major factor in policymaking.
    Shanghai Stock Exchange data showed the top five losers
among exchange-traded bonds in morning deals were all issued by
property firms.
    Small developers Modern Land  1107.HK  and Sinic Holdings
 2103.HK  were the latest scrambling to delay deadlines, after
Evergrande and Fantasia  1777.HK  missed their payments since
September. 
    Modern Land's dollar bond due 2023  BS227761342=  plunged
25% to 32.250 cents on the dollar, while Sinic's bond due 2022
 XS2281324389  rose 12% to 19.35 cents, yielding over 1380%. 
    Modern Land, whose shares dropped over 3% to new low on
Tuesday, had requested bondholders on Monday to delay a
repayment due later this month for three months, while Sinic
said it would likely default next week.  urn:newsml:reuters.com:*:nL1N2R703A
    Aoyuan's bond due 2025  CN163188SH=  declined 3.5% while
Sunac's bond due 2024  CN163376SH=  lost 2.6%. 
    On Monday, Fantasia Holdings'  1777.HK  unit limited trading
in its Shanghai bonds, which is often done ahead of defaults. 
    
    BROADER FALLOUT?
    While global attention has been focused on missed dollar
debt payments by Chinese property issuers, market indicators
suggested that worries about contagion and a slowing economy are
spreading further.
    The cost of insuring against a China sovereign default
continued to rise on Tuesday, with 5-year credit default swaps
 CNGV5YUSAC=MG  - which investors typically use as a hedge
against rising risk - hitting its highest point since April
2020.
    The option-adjusted spread on the ICE BofA Asian Dollar High
Yield Corporate China Issuers Index  .MERACYC  pulled back to
2,061 basis points on Monday evening U.S. time, just off its
previous all-time high of 2,069 basis points on Friday.
    Shares of several other property firms, however, fared
better as markets bet on more loosening of policies following
northeastern city of Harbin's measures to support property
developers and their projects.  urn:newsml:reuters.com:*:nL1N2R70AY
    Top developers Country Garden  2007.HK  and Sunac China
 1918.HK  both rose 2%.    
    Evergrande's electric vehicles unit  0708.HK  jumped over
10% after it vowed to start producing cars next year.
 urn:newsml:reuters.com:*:nL1N2R70R3

 (Editing by Shri Navaratnam)
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters
Messaging: clare.jim.thomsonreuters.com@reuters.net))