On October 12, 2021, China Evergrande Group (3333.HK) missed its third round of bond payments in three weeks. This failure intensified market fears over contagion involving other property developers as a wall of debt payment obligations coming due in the near term.
Following two other payments it missed in September, some bondholders said they did not receive coupon payments totaling $148 million on Evergrande’s April 2022, April 2023, and April 2024 notes due by 0400 GMT on Tuesday.
As the real estate developer wrestles more than $300 billion in liabilities, that puts investors at risk of large losses at the end of 30-day grace periods. Evergrande did not immediately respond to a request for comment.
Refinitiv data shows that a total of $92.3 billion in bonds issued by Chinese developers will be due in the next year. In a note, brokerage CGS-CIMB said:
“We see more defaults ahead if the liquidity problem does not improve markedly,” adding that developers with weaker credit ratings are having difficulty in refinancing at the moment.”
Following a rout in the previous session on fears about fast-spreading contagion in the $5 trillion sector, which accounts for a quarter of the Chinese economy and often is a major factor in policymaking, trading of high-yield bonds remained soft on Tuesday.
In morning deals, the top five losers among exchange-traded bonds were all issued by property firms, the Shanghai Stock Exchange data showed.
After Evergrande and Fantasia (1777.HK) missed their payments since September, small developers Modern Land (1107.HK) and Sinic Holdings (2103.HK) were the latest scrambling to delay deadlines.
Due 2023, Modern Land’s dollar bond plunged 25% to 32.250 cents on the dollar, while Sinic’s bond due 2022 rose 12% to 19.35 cents, yielding over 1380%.
Modern Land’s shares dropped over 3% to a new low on the day following its request to bondholders on October 11 to delay a repayment due later this month for three months, while Sinic said it would likely default next week.
Aoyuan’s bond due 2025 declined 3.5% while Sunac’s bond due 2024 lost 2.6%. Fantasia Holdings’ (1777.HK) unit limited was trading in its Shanghai bonds on Monday, which is often done ahead of defaults.
Widespread Fallout?
Market indicators suggested that worries about contagion and a slowing economy are spreading further although global attention has been focused on missed dollar debt payments by Chinese property issuers.
However, market players say the sell-off appears limited to more risky bond names. Michael Wong, director at CP Securities based in Hong Kong said:
“The market is trading more rationally now, according to different quality and rating of the companies, rather than selling off on the whole sector.”
On October 12, the cost of insuring against a China sovereign default continued to rise, with the 5-year credit default swaps – which investors mostly use as a hedge against rising risk – hitting its highest point since April 2021.
Just off its previous all-time high of 2,069 basis points on Friday, the option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) pulled back to 2,061 basis points on Monday evening U.S. time.
After the northeastern city of Harbin’s measures to support property developers and their projects were announced, shares of several other property firms, however, fared better as markets bet on more loosening of policies.
Top developers Country Garden (2007.HK) and Sunac China (1918.HK) both rose 2%. Following its vow to start making cars next year, Evergrande’s electric vehicles unit (0708.HK) gained over 10%.
