China Evergrande debt woes raise financing pressure on peers

Xinyuan Real Estate Co

13/09/2021 11:47

By Andrew Galbraith
    SHANGHAI, Sept 13 (Reuters) - China Evergrande Group's
 3333.HK  struggles to quickly sell off assets and avert
defaulting on its 1.97 trillion yuan ($305.3 billion) in
liabilities is raising the risk of contagion for other
privately-owned developers, fund managers and analysts say.
    Worries over the country's No.2 property developer's ability
to make bank loan interest and wealth management product
payments have led to a worsening sell-off in its bonds and
shares in the past week.
    Evergrande's offshore bonds have dropped to less than a
quarter of their face value, trading of its onshore bonds has
been paused, and a stock price rout has deepened, knocking more
than three-quarters off its market capitalisation this year.
    "Telling property guys to de-leverage so quickly is like
telling a 900-pound guy to drop to under 100 pounds," said a
fixed income asset manager who declined to be identified due to
sensitivities around the issue. 
    "It won't be the obesity that kills him, but the process of
losing so much weight (so quickly)."
    With about $20 billion in outstanding offshore bonds,
Evergrande is one of the world's biggest emerging market issuers
of dollar debt, and the company's woes have driven an index of
Chinese high-yield dollar issuers  .MERACYC  to 16-month lows.
    S&P Global Ratings said bond market volatility will
exacerbate some developers' efforts to refinance, adding that
its rated developers were due to repay 480 billion yuan worth on
onshore and offshore maturities over the next 12 months.
    Privately-owned developers Guangzhou R&F Properties Co
 2777.HK  and Xinyuan Real Estate Co  XIN.N , downgraded this
month over concerns they will struggle to repay debts, have seen
yields on their bonds surge above 30% in a sign of weakening
access to market funding.
    Evergrande vowed on Friday to repay all of its matured
wealth management products as soon as possible, which lifted its
dollar bonds, but analysts see more difficulties ahead.
 urn:newsml:reuters.com:*:nL1N2QC0Q9 
    "The property sector is under pressure and some developers
are under the risk of bankruptcy...the bond market is reflecting
that reality," said Larry Hu, economist at Macquarie Capital in
Hong Kong. "We're going to see more developers go bankrupt in
the coming months."
    Evergrande's debt pains after years of aggressive expansion
come amid a sweeping clean-up of the property market that has
formed a key pillar of Beijing's new campaign of "Common
Prosperity", which many observers have seen as a return to
China's socialist roots.  urn:newsml:reuters.com:*:nL1N2Q309Y
    But while private homebuilders struggle, steady onshore
credit spreads indicate Chinese investors remain unconcerned for
now about risks spilling into the broader banking system.
    "Contagion from Evergrande to other developers will be
clearer for high-yield and private debtors. The impact on
state-owned developers and banks is limited as far as bond
prices are concerned," economists at Natixis said in a note.
    February 2023 dollar bonds of state-owned developer Poly
Developments and Holdings Group Co  600048.SS  were trading at a
premium of nearly 3% to their face value on Monday, yielding
1.78%.  HK175640312= 
    ($1 = 6.4505 Chinese yuan)

 (Editing by Jacqueline Wong)
 ((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging:
andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: https://twitter.com/apgalbraith))