Analysis: Evergrande averting default to do little to revive China property bond sales

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An aerial view exhibits residential buildings on the building web site of Evergrande Cultural Tourism Metropolis, a China Evergrande Group venture whose building has halted, in Suzhou’s Taicang, Jiangsu province, China October 22, 2021. Image taken with a drone. REUTERS/Xihao Jiang

  • Traders await FY leads to Q1 to gauge full extent of pressure
  • China property sector issuance fell to near-four yr low in Q3
  • Excessive yield property default charges hit document excessive of 6.7%

HONG KONG, Oct 22 (Reuters) – China property corporations may very well be locked out of offshore debt markets till early subsequent yr as international traders wait on the sidelines for embattled China Evergrande Group to work out its debt woes, fund managers and advisors stated.

Despite the fact that $83.5 million to its Citibank trustee on Thursday to pay a bond coupon initially due on Sept. 23 and stave off imminent default, the transfer will do little to calm nervous property market traders, they added.

As a substitute, markets are more likely to stay fractured which might result in extra asset gross sales and a scramble to lock in costly personal fund elevating by lower-rated corporations trying to refinance debt and keep away from their very own defaults within the subsequent yr.

“We may have to attend for full yr outcomes which probably occur on the finish of the primary quarter subsequent yr as traders might want to see how…tight the financials of the property builders are,” PineBridge Funding’s Arthur Lau stated.

Whereas Evergrande’s cost was a constructive, it nonetheless must make overdue coupon funds of $195 million, . It then has an additional $340 million of coupon funds due on its offshore bonds between Nov. 1 and Dec. 28.

Lau stated traders can be carefully monitoring Chinese language property gross sales, including he anticipated capital markets to reopen at finest within the first quarter.

“We do anticipate few extra defaults earlier than yr finish so it is arduous to have (builders) come to market with such backdrop.”

Knowledge on Friday confirmed China’s authorities land gross sales within the fast-cooling property sector.

The true property sector accounts for 1 / 4 of China’s total bond inventory and greater than half of its excessive yield debt, based on JPMorgan. The sector additionally has the very best share of excessive yield bonds at 69%.

Almost $322 billion price of bonds from mainland Chinese language corporations, in numerous currencies, are because of expire within the present quarter, based on Refinitiv, or 1,251 points.

Over the following 12 months, China’s property sector alone has $28.3 billion price of offshore debt due. The biggest earlier than the tip of 2021 is Shui On Growth’s $500 million deal in late November.

Fantasia Holdings Group Co. , which missed a $206 million bond compensation in , has almost $420 million price of bonds maturing in mid-December.


Traders are more likely to stay cautious about shopping for decrease rated Chinese language property debt till property gross sales and mortgage purposes begin to rise, fund managers say.

“Property corporations have been very lively within the U.S. greenback bond market due to the decrease rates of interest that have been on supply, however going ahead it is going to depend upon how worldwide traders have a look at this sector,” BOCOM Worldwide’s head of analysis Hong Hao stated.

“There are some excessive threat traders nonetheless , however the dynamics of the Chinese language property market have modified.”

A slowdown in debt issuance from the sector is already evident, with China’s property builders issuing simply $2.7 billion price of offshore bonds within the third quarter, Refinitiv confirmed, the bottom quarterly quantity for the reason that finish of 2017.

There was little signal of a turnaround in October.

“Proper now, it might be very difficult for any China property issuers to entry the bond market,” stated Soo Chong Lim at JPMorgan, who expects extra defaults over the following few months.

She want to see some “signaling from the central authorities on stabilising each funding situations and the bodily market earlier than tip-toeing again into the decrease a part of the credit score curve.”

JPMorgan calculates that the year-to-date default price for China’s excessive yield market stood at 5.2% and for top yield within the property sectors at 6.7% – each document highs.

Herbert Smith Freehills associate Alexander Aitken stated the property companies have been dealing with a lack of investor confidence which was unlikely to be resolved within the near-term.

“It may very well be robust for top yield Chinese language property issuers with their regular investor group as a result of we are able to already see bond yields rising very considerably,” he stated.

“The attention-grabbing query is whether or not the present state of affairs shall be restricted to the property sector or begin to unfold extra broadly into the Chinese language credit score market.”

Reporting by Scott Murdoch in London and Karin Strohecker in London, extra reporting by Patturaja Murugaboopathy in Bengaluru, Modifying by Sumeet Chatterjee, Kirsten Donovan


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