China’s property developers dominate world’s risky debt

Bloomberg

Chinese property developers are responsible for about half of the world’s distressed dollar bonds, a fresh indication of the magnitude and global nature of the industry’s woes.
Of the $139 billion of dollar-denominated bonds trading at distressed prices, 46% were issued by companies in China’s real estate sector, according to data compiled by Bloomberg on October 12. That captured bonds trading at yield premiums of at least 10 percentage points above their benchmark rates.
In another sign of weakening investor confidence, demand for Chinese dollar bonds fell in September, as China Evergrande Group’s liquidity woes weigh on the primary market for offshore debt.
More than 24 hours have passed without any clarity about whether embattled developer Evergrande has delivered interest payments due on October 11 for three of its dollar bonds. There is a 30-day grace period before any missed payment would constitute a default.
Evergrande’s next test of investor confidence will be on October 19, when a 121.8 million yuan ($18.9 million) of interest is due on a domestic bond. It then has to deliver coupon payments for two dollar notes on November 6.
In a world where central bank stimulus has wiped out most of the distress from global bond markets, the troubles of China’s property companies are standing out.
Fantasia Holdings Group has formed an internal debt and assets restructuring team, to be led by executive director Ke Kasheng, according to a company WeChat post on Wednesday. The team will “coordinate group’s debt and asset restructuring, and resolve liquidity risks,” the post said.
Some of Chinese developer Yango Group Co’s onshore bonds continued to tumble on Wednesday, even after last week’s denial of social media chatter that a housing project had been halted.
Shimao Group Holding deposited funds into the trustee’s bank account for redemption of notes in full on October 15 at an outstanding principal of $820 million, with interest accrued to the maturity date, according to an exchange filing.
The developer’s investment-grade dollar bonds dropped on Wednesday morning, according to credit traders.
Beijing postponed auctions of 26 land plots while the city of Hangzhou scrapped bids for 17 this week amid the government’s efforts to cool down the housing market, Securities Daily reported, citing statements from the cities.
The Chinese government won’t allow the turbulence surrounding Evergrande to turn into a systemic crisis, the chief executive officer of Standard Chartered Plc said.
The lender, which has a heavy focus on Asia, has no “concerning exposures to the property sector,” Bill Winters said in an interview with Bloomberg Television recorded in London.
Evergrande’s trading halt has led to days without a company statement detailing the reason — and it’s all too familiar for Hong Kong traders who’ve had to navigate dozens of similar episodes this year alone.
Some 81 stocks on Hong Kong’s main board have been suspended for three months or more, according to exchange data as of September 30. Most were halted in 2021, including China Huarong Asset Management Co — the bad-debt manager that roiled markets after delaying its earnings report.
The property market faces cool-down pressure in fourth quarter as the government’s property control policies remain tight, China Securities Journal reported, citing unidentified research institutions.
Most developers have become more prudent in their bidding in the second half of this year amid a grim outlook for financing and falling gross margins for the whole sector, the report cited a research note by CSC Financial Co as saying.