Evergrande woes hit toilet, air conditioner and paint makers in Japan

TOKYO, Sept.21 (Reuters) – Concern that China Evergrande (3333.HK) could default on its mountain of debt has hit the shares of toilet maker Toto (5332.T) and other Japanese companies that are considered as vulnerable to a further slowdown in China’s real estate development.

Toto lost 6.1% on Tuesday, extending its decline since Thursday to 14.8%, on the perceived risk of exposure to Evergrande, which investors fear it will repay its debt later this week.

“There are growing and widely reported concerns about the flow of funds from leading local developer China Evergrande Group, whose commercial scale suggests to us that it is most likely one of TOTO’s main clients,” he said. said Arisa Katsuyama, analyst at Morgan Stanley.

“The defaults since the beginning of the year by real estate companies in China, and not just in China Evergrande, already exceed the cumulative figure of the last 10 years as more stringent regulations are called for,” he said. she said, adding that investors should keep in mind the risk Toto might have. build up reserves for loan losses.

China accounted for around 30% of Toto’s profits last year, but the company’s spokesperson said it couldn’t comment on specific transactions, especially if it had deals with Evergrande.

Other potential suppliers to Chinese home builders and builders were also caught in the fray, with air conditioner maker Daikin (6367.T) losing 4.7%.

Almost a quarter of Daikin’s air conditioner sales came from China in the last fiscal year, compared to 13-16% in previous years.

Paint maker Nippon Paint Holding (4612.T), for which China is by far the largest market, fell 7.5%.

Construction machinery manufacturers, which have long benefited from China’s construction boom, also suffered, with Komatsu (6301.T) losing 5.4% and Hitachi Construction Machinery (6305.T) losing 5.5%.

Investors also ditched SoftBank Group (9984.T), a big investor in Alibaba and other Chinese tech companies, fearing Beijing would continue to tighten its grip on them.

Shares of SoftBank Group fell 5.0% as US-listed Alibaba shares hit their lowest level in two years on Monday.

Tomoichiro Kubota, senior strategist at Matsui Securities, said the damage could spread to more companies if China’s slowdown becomes more evident.

“It seems that the Chinese authorities are cracking down on outright luxury, which seems to have the support of the Chinese public. It looks a bit like the post-bubble era in Japan, when high house prices were seen as bad for people. ordinary. “

While many Japanese companies depend on Chinese demand, Japanese institutional investors have relatively limited exposure to Chinese assets.

Japan’s largest investor, the Government Pension Investment Fund (GPIF), had 9.673 billion yen ($ 88.31 million) exposure to Evergrande in March, 5.9 billion yen in bonds and 3.7 billion yen in yen in stocks, out of its 186.1 trillion yen ($ 1.70 trillion) assets.

($ 1 = 109.53 yen)

Reporting by Hideyuki Sano and Shinji Kitamura Editing by Robert Birsel

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