Evergrande’s threat of contagion hits real estate stocks in China and Hong Kong

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Shares of Chinese and Hong Kong real estate groups fell to their lowest levels in half a decade as the escalating liquidity crunch at developer Evergrande showed signs of spreading beyond the sector.

Evergrande, the world’s most indebted real estate developer, faces more than $ 300 billion in obligations to creditors and other companies and a critical interest payment deadline on its offshore bonds on Thursday.

The Hong Kong-listed company’s shares fell 18.9% on Monday. The drop underscored concerns about the broader health of China’s real estate sector and triggered a wider sell-off, sending the Hang Seng Property Index, which tracks a dozen listed developers, down nearly 7%, to its highest. low level since 2016.

Hong Kong’s larger Hang Seng Index fell 3.7%, pushing the benchmark down nearly 12% for the year.

Evergrande, whose share price has fallen since he warned of the risk of default last month, said senior executives would face a “severe penalty” after getting prepayments on products from the company. investment, he then told retail investors that he could not repay on time.

Exchanges in Hong Kong indicated that growing fears for the real estate sector were weighing on other developers and financial institutions. The real estate sector, which accounts for more than a quarter of China’s economic activity, has come under pressure to reduce its debt.

“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director of Wealthy Securities, a Hong Kong-based brokerage firm. Chinese developers are under considerable pressure to repay dollar-denominated bonds, he added, as markets have become nervous about Beijing pushing listed real estate groups to cut housing costs by Mainland China and Hong Kong.

“It also affects the banks – if you have lower house prices, what happens to their mortgages? »Said Tse. “It has a chain effect.”

Shares of Ping An, China’s largest insurer, fell 8.4% on Monday, after closing down 5% on Friday as it was forced to disclose it had no exposure to debt. or to the actions of Evergrande. Ping An has 63.1 billion Rmb ($ 9.8 billion) exposure to the country’s real estate stocks through its 3.8 billion Rmb of insurance funds.

The insurer collected $ 3.2 billion in the first half after the failure of China Fortune Land Development, a developer specializing in industrial parks in northern Hebei province.

Other Chinese developers, including Fantasia Group, which was downgraded last week by Fitch, the rating agency and Guangzhou R&F, have also come under pressure in recent weeks. Reuters reported on Friday that Beijing had called on Hong Kong property moguls in closed-door meetings to do more to alleviate the city’s chronic housing shortage.

Signs of a slowdown in China’s real estate sector have also hit iron ore prices, which reached a record high this year but fell last week after markets digested the impact of government restrictions on production of iron ore. ‘steel.

On Monday, Singapore iron ore futures fell 11.5% to below $ 100 a tonne for the first time in more than a year. Iron ore prices fell 20% last week, their worst weekly performance since the 2008 financial crisis.

Stock exchanges in mainland China were closed for a public holiday, but futures on the FTSE China A50 index traded in Singapore fell 4.3%.