Chinese real estate bonds, stocks crash as Evergrande angst spreads

SHANGHAI, Oct. 8 (Reuters) – Bonds and stocks issued by Chinese developers collapsed on Friday as onshore markets returned from a week’s vacation with little clue as to how regulators are proposing to contain contagion the debt problems of the cash-strapped China Evergrande group.

Evergrande (3333.HK), whose shares have remained on hold since he called for a halt on Monday pending a major trade announcement, faces one of the country’s biggest defaults as ‘he’s struggling with over $ 300 billion in debt.

The company missed coupon payments on two tranches of dollar bonds last month and faced three more early next week, totaling nearly $ 150 million. The possible collapse of one of China’s largest borrowers has raised concerns about contagion risks for the real estate sector in the world’s second-largest economy, as its indebted peers are hit by credit downgrades over looming defaults .

This uncertainty has hit bonds issued by real estate companies such as Kaisa Group (1638.HK), Central China Real Estate (0832.HK) and Greenland (600606.SS) on the Chinese National Day.

Onshore bonds caught the sell-off on Friday. The Shanghai Stock Exchange has suspended trading in two bonds issued by smaller developer Fantasia Group China Co, one that fell more than 50%, after majority shareholder Fantasia Holdings Group (1777.HK) missed the deadline for a $ 206 million debt payment in the international market on Monday. .

“Typically, a small business default will be viewed as idiosyncratic. However, given the tight liquidity for many Chinese developers now, market participants are wondering if this may be a precursor to voluntary defaults by other developers with healthy short-term liquidity positions, but longer-term debt. unsustainable, ”said Chang Wei Liang, credit and currency strategist at DBS Bank, in a note.

In a statement released Thursday evening, Fantasia Group said its operations were normal and maintained close contact with investors. He also said he “actively promotes debt service protection measures.”

The onshore bonds of Xiamen Yuzhou Grand Future Real Estate Development, Yango Group (000671.SZ) and Guangzhou R&F Properties (2777.HK) also fell on Friday.

China Aoyuan Group (3883.HK) said in a statement on Friday that it had deposited funds for the payment of an onshore bond maturing on October 12, after another of its onshore bonds fell further. 7.5% in morning exchanges.

Concerns around the Evergrande contagion also hit continental stock prices, causing a real estate sector tracking index (.CSI000952) down 1.75% in afternoon trading, versus a rise around 1% for blue chip stocks (.CSI300)

In Hong Kong, the Hang Seng Property and Construction (.HSCIPC) index fell more than 0.6%, compared with a decline of 0.1% for the larger Hang Seng index (.HSI).

Bloomberg reported on Thursday that some holders of dollar bonds had been invited by advisers to a Friday call at 6.30am EST (10.30am GMT) to discuss strategy and how to expand the group.

In addition, Evergrande’s trustee, Citi, has hired law firm Mayer Brown as an advisor, according to a source familiar with the matter. Citi and Mayer Brown declined to comment.

A group of bondholders had previously selected investment bank Moelis & Co and law firm Kirkland & Ellis as advisers on a possible restructuring of a tranche of bonds, two sources familiar with the matter said in September. . Read more

Chinese regulators made no comment specifically on Evergrande during the holiday week of October 1, although the central bank last Wednesday urged financial institutions to cooperate with relevant departments and local governments to keep development “stable and healthy “housing market and safeguard the interests of housing consumers.

In a comment Thursday evening, the state-backed Global Times said that authorities’ compliance with debt ceilings known as the “three red lines” indicated that “China has its own set of priorities. and maintains the focus on deflating the housing bubble and reducing risk. “

Investors were awaiting news from the company after asking to halt trading of its shares in Hong Kong on Monday pending an announcement of a major transaction. Evergrande Property Services Group (6666.HK), a listed spin-off last year, also requested the shutdown and said it was referring to “a possible general offer for the shares of the company”.

While an asset sale would temporarily alleviate concerns about Evergrande’s cash flow, analysts also believe that the indebtedness of Evergrande and some other Chinese real estate companies is too large to be resolved quickly.

A Chinese high-yield debt index (.MERACYC), dominated by developer issuers, slipped throughout the week and hit its lowest level in more than five years on Friday morning. He may soon see the widest spreads ever.

Reporting by Andrew Galbraith and Vidya Ranganathan, additional reporting by Megan Davies in New York and Scott Murdoch in Hong Kong; Editing by Sam Holmes and Stephen Coates

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