Wrapup 3: China's bond markets slump again as new Evergrande deadline passes

Modern Land (China)

11/10/2021 19:23

(Adds quote, details about CST, WSJ story)
    * Evergrande looks set to miss third round of bond payments
    * Some offshore bondholders have not had payment - sources
    * Modern Land asks investors to push back bond payment
    * Sinic warns it is likely to default next week 

    By Andrew Galbraith and Marc Jones
    SHANGHAI/LONDON, Oct 11 (Reuters) - Chinese property firms'
bonds were hit with another wrecking ball on Monday as
Evergrande  3333.HK  looked set to miss its third round of bond
payments in as many weeks and rivals Modern Land and Sinic
became the latest scrambling to delay deadlines.
    High-yield Chinese bond markets were routed once again as
fears about fast-spreading contagion in the $5 trillion sector,
which drives a sizable chunk of the Chinese economy,  continued
to savage sentiment.
    Meanwhile, the Wall Street Journal reported https://www.wsj.com/articles/xi-jinping-scrutinizes-chinese-financial-institutions-ties-with-private-firms-11633972484?mod=hp_lead_pos6
 that Chinese President Xi Jinping is launching inspections of
financial institutions to see if private firms like Evergrande
had been too close to state-owned banks, investment firms and
financial regulators. Large lenders to Evergrande included
financial conglomerate Citic, which is being scrutinized, the
WSJ reported. Citic was not immediately available for comment.
 urn:newsml:reuters.com:*:nL4N2R72VE
    Weary investors had been holding out little hope that
Evergrande would suddenly stump up Monday's near $150 million of
coupon payments, but the fact bondholders said they hadn't
received anything this time either just bolstered expectations
for a full-scale default.  urn:newsml:reuters.com:*:nL4N2R722V
    "The key for offshore holders is the next couple of weeks
and whether any payment or communication will come from the
company in relation to its first missed offshore coupon," wrote
Craig Erlam, Senior Market Analyst, UK & EMEA, at forex trading
firm OANDA https://www.oanda.com/us-en in a research note on
Monday. 
    Erlam wrote that it was "highly unlikely" Evergrande would
make the payment "considering how the last two deadlines have
gone". 
    A spokesperson for Evergrande did not immediately respond to
a request for comment
    Once China's largest developer, the firm has more than $300
billion in liabilities that are now at risk.  urn:newsml:reuters.com:*:nL8N2QP1H5
    The cash-strapped property developer's troubles and
contagion worries have sent shockwaves across global markets and
the firm has already missed payments on dollar bonds, worth a
combined $131 million, that were due on Sept. 23 and Sept. 29.
    CST Group Limited, an investment holding company http://www.cstgrouphk.com/en/about/profile.php,
 said in a statement https://doc.irasia.com/listco/hk/cstgroup/announcement/a211011b.pdf
 on Monday that it sold 10.5% China Evergrande Notes and 11.5%
China Evergrande Notes for $815,000 and $702,000.
    Other signs of stress included smaller developer Modern Land
 1107.HK  asking investors to push back by three months a $250
million bond payment due on Oct. 25 in part "to avoid any
potential payment default."
    Sinic Holdings  2103.HK  said it too was likely default next
week as it didn't have enough financial resources to make its
remaining bond payments this year. It has one at the start of
next week, although that bond was already down 75%.
 VG224004788=   urn:newsml:reuters.com:*:nL1N2R70S9   
    Modern Land's April 2023 bond with a coupon of 9.8% plunged
more than 25% to 32.25 cents on the day, according to financial
data provider Duration Finance, while the company's shares
 1107.HK  have lost a third of their value over the last month.
    Kaisa Group, which was the first Chinese property developer
to default back in 2015, also saw some of its bonds slump to
well under half their face value  XS162759809=1M 
 XS234758187=1M . R&F Properties  2777.HK   XS212517208=1M  and
Greenland Holdings, which both have prestige projects in global
cities like London, New York and Sydney, were also widely sold.
    "It's a disastrous day," said Clarence Tam, fixed income
portfolio manager at Avenue Asset Management in Hong Kong,
highlighting how even some supposedly safer "investment grade"
firms had now seen 20% wiped off their bonds.
    "We think it's driven by global fund outflow ....
Fundamentally, we are worried the mortgage management onshore
hits the developers' cash flow hard," he added, referring to
concerns people could stop putting deposits down on new homes. 
    Analysts at JPMorgan also highlighted how international
investors were now demanding the highest ever premium to buy or
hold 'junk'-rated Chinese debt. 
    There is now a whopping 1,200 basis point difference between
the bank's closely-followed JACI China high yield index and a
similar index of investment grade AA-rated local Chinese market
bonds, known as "onshore" bonds.     
    "Evergrande's contagion risk is now spreading across other
issuers and sectors," JPMorgan's analysts said. 
    Another London based analyst who asked not to be named said:
"Slowly and gradually we are seeing the rest of the Chinese
property sector fall apart".
   
    SHAKY FOUNDATIONS 
    In equity markets, the Hang Seng Property and Construction
sub-index  .HSCIPC  fell 0.4% against a nearly 2% rise in the
broader index.  .HSI  
    Fantasia Group China Co, whose controlling shareholder is
Fantasia Holdings, said on Monday it would adjust the trading
mechanism of its Shanghai-traded bonds following credit
downgrades by China Chengxin International Credit Rating Co
(CCXI).
    Fantasia  1777.HK  had appointed advisers on Friday after it
shocked markets by missing a bond payment earlier in the week.
It saw its bonds dive from almost 100 cents on the dollar to
just 20 cents, as just a couple of weeks earlier it had said its
liquidity was fine.  urn:newsml:reuters.com:*:nFWN2QM0L3
    "We believe policymakers have zero tolerance for systemic
risk to emerge and are aiming to maintain a stable property
market, and policy support could be forthcoming if the
deterioration in property activity levels worsen," said Kenneth
Ho, head of Asia Credit Strategy at Goldman Sachs. 
    "That said, we also believe that policymakers do not want to
over-stimulate, and their longer term goal is to deleverage the
property sector."  

    Harbin, the capital of northeastern Heilongjiang province,
has become one of the first cities in China to announce measures
to support property developers and their projects, which have
been shaken by the Evergrande crisis.  urn:newsml:reuters.com:*:nL1N2R70AY
    Advisers to offshore bondholders said on Friday they not yet
heard from Evergrande, and are also demanding more information
about its plan to divest some businesses, worried a potential
fire-sale could ultimately leave them with less.  urn:newsml:reuters.com:*:nL1N2R701E
    Trading in shares of Evergrande, as well as its Evergrande
Property Services Group  6666.HK  unit, has been halted since
Oct. 4 pending a major deal announcement. 

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China property firms' bonds collapsing    https://tmsnrt.rs/3asfYgY
China’s most indebted property companies    https://tmsnrt.rs/3u2Onfv
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional Reporting by Xiao Han and Clare Jim and Megan
Davies and Niket Nishant
Editing by Mark Potter)
 ((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters
Messaging: marc.jones.thomsonreuters.com@reuters.net  Twitter
@marcjonesrtrs))