Wrapup 1: China central bank says Evergrande debt woes are manageable

Xinyuan Real Estate Co

15/10/2021 12:39

* Central bank makes rare comments on Evergrande debt
situation
    * PBOC: financial firms don't have concentrated Evergrande
risk
    * Xinyuan Real Estate agrees to exchange offer with
bondholders
    * Developer bonds deepen rout, shares edge lower

    By Andrew Galbraith
    SHANGHAI, Oct 15 (Reuters) - The spillover effect of China
Evergrande Group's debt problems on the banking system is
controllable, a central bank official said on Friday, in rare
official comments on a liquidity crisis at the massive developer
that has roiled global markets.
    Chinese authorities are urging Evergrande  3333.HK  to step
up asset disposals and the resumption of projects, Zou Lan, head
of financial markets at the People's Bank of China (PBOC), told
a briefing, adding that individual financial institutions did
not have highly concentrated exposure to Evergrande.
 urn:newsml:reuters.com:*:nB9N2QE01N
    "In recent years, this company did not operate and manage
itself well. It failed to conduct prudent operations according
to changing market conditions, and it blindly diversified and
expanded its business," Zou told the briefing in Beijing.
    Chinese officials and state media have been largely silent
on the crisis at Evergrande, which has missed a series of bond
interest payments and has $300 billion in debt, making it the
the world's most indebted developer.
    Another Chinese developer, Xinyuan Real Estate Co's  XIN.N ,
avoided a default on a maturing dollar bond on Friday, saying in
a Singapore Exchange filing that bondholders had agreed to an
offer to accept new bonds and cash in exchange for maturing
notes.  urn:newsml:reuters.com:*:nL1N2RB0KD
    Xinyuan said that holders of more than 90% of the company's
$229 million notes due Oct. 15 had agreed to the exchange, which
would see it deliver new bonds worth $205.4 million and $19.1
million cash. 
    Xinyuan's 14.5% September 2023 bond crashed nearly 30% on
Friday to trade at 58.35 cents, according to data provider
Duration Finance.
    The agreement follows warnings from other developers that
they could default on their bonds, while still others have taken
steps to delay payments in the wake of Evergrande's troubles. 
    Evergrande, China's No.2 developer with 1,300 real estate
projects in moer than 280 cities, missed a third round of
interest payments on its international bonds this week.
    
    PBOC URGES SPEEDY ASSET SALES 
    At the Friday briefing, Zou said Evergrande should step up
asset disposals and the resumption of project building, for
which authorities will provide financing support.
    Some lenders have had “misunderstandings" about the central
bank’s debt control policies, causing financial strains for some
developers, as some new projects were unable to get loans even
after repaying existing loans, Zou said.
    "This short-term extreme reaction is a normal market
phenomenon,” he said.
    Chinese developers face more than $500 million in coupon
payments on their high-yield bonds before the end of this month.
Refinitiv data show coupon payments by Kaisa Group Holdings
 1638.HK  and Fantasia Holdings  1777.HK  are due this weekend.
 urn:newsml:reuters.com:*:nL1N2R80FT 
    "In some cities, the property prices surged too fast,
causing the approval and issuance of personal mortgages to be
restrained," Zou said, referring to the first three quarters of
this year. 
    "Once housing prices stabilise, the supply and demand of
mortgages in those cities will be normalized too," he said.
    
    FRESH SETBACKS
    Still, Evergrande suffered fresh setbacks on Friday with
sources telling Reuters that Chinese state-owned Yuexiu Property
 0123.HK  pulled out of a proposed $1.7 billion deal to buy the
company's Hong Kong headquarters building over worries about the
developer's dire financial situation.  urn:newsml:reuters.com:*:nL8N2R94IG 
    Evergrande has been scrambling to divest some assets to
repay creditors knocking on its doors, and has missed three
rounds of interest payments on its international bonds, and the
collapse of the talks shows the difficulties it is facing. 
    Adding to its woes, Hong Kong's audit regulator said on
Friday it was investigating Evergrande's 2020 accounts and their
audit by PwC because it had concerns about the adequacy of
reporting on whether it could continue operating as a going
concern.  urn:newsml:reuters.com:*:nL1N2RB0I1 
    Evergrande bonds fell following the Reuters report. The
company's 8.75% June 2025 bonds  XS1627599654  slumped more than
6% to trade at a discount of more than 80% from its face value,
according to data provider Duration Finance. 
    
    BOND SLUMP DEEPENS
    Apart from Xinyuan, Duration Finance data showed other
developers' bonds deepening their rout on Friday. Sinic Holdings
Group's 10.5% June 2022 bond  VG218484883=  dived more than 20%
to just 12.25 cents, and Ronshine China Holdings' February 2022
bond fell more than 6% to 68.35 cents.
    Spreads on Chinese high-yield corporate dollar bonds
 .MERACYC  touched a fresh record late Thursday evening U.S.
time, having nearly tripled since late May, while
investment-grade spreads remained near their widest in more than
two months  .MERACCG .
    Worries of contagion have also hit property developers'
shares this week. On Friday, an index tracking A-shares in the
sector  .CSI000952  gave up small gains to end down 0.1%,
lagging a 0.38% gain in the blue-chip index  .CSI300  and taking
losses since Tuesday to 4.5%.
    China has been ramping up property market curbs since late
2020, introducing new measures to closely monitor and control
developers' debt levels.
    But with economic growth cooling and new construction starts
slowing, speculation has been rife over whether it will start
relaxing those restrictions, as was the case during previous 
downturns. ECILT/CN 

 (Reporting by Andrew Galbraith, Cheng Leng,Kevin Yao and Tony
Munroe, additional reporting by Alun John; Editing by Kim
Coghill, Jacqueline Wong and Nick Macfie)
 ((cheng.leng@thomsonreuters.com; +8610-5669-2129;))