Chinese bond market slips as Evergrande’s third missed payment hits real estate sector, as smaller rivals scramble to avoid default


Chinese bond markets have been hit as some holders of U.S. Evergrande bonds with coupon payments due on Monday said they had not yet received them, adding to the company’s crisis.

Evergrande failed to pay coupons on a 9.5% note due in 2022 and a 10% bond due in 2023, Deutsche Bank strategists said. Its bonds were last trading between 21 and 22 cents on the dollar, according to the Financial Times. Total interest owed by the developer now stands at $ 148 million.

“The key for offshore holders is the next two weeks and whether any payment or communication will come from the company in relation to its first missed offshore coupon,” said Craig Erlam, senior market analyst at OANDA.

Erlam added that it was “highly unlikely” that Evergrande would make its third payment, given the evolution of its last two deadlines.

Yields on an ICE index that tracks Chinese private issuers in the Asian dollar high yield bond market hit 22% since Friday, the highest level since 2009, from 13% at the start of last month and 10% in June, according to the FT. reported.

Meanwhile, credit default swaps on five-year Chinese sovereign bonds have risen 8 basis points so far this week to 59 basis points, their highest level since April 2020. The rising cost of insurance against a potential sovereign default would be linked to increasing problems in the real estate market.

An index that measures the performance of investment-grade, high-yielding U.S. dollar-denominated debt by real estate and property developers fell to 452, its lowest since 2016, according to Bloomberg data.

There were other signs of tension in the real estate market, with rival developer Sinic Holdings saying it was likely to default next week because it doesn’t expect to pay the principal, or interest, on a bond. of $ 250 million due Oct. 18. The group has a bond payment due early next week, but that bond was already down 75%, according to Reuters, while shares of Sinic plunged 87% on Tuesday.

Modern Land has also asked investors for permission to defer repayment of a $ 250 million bond due later in October. The company’s April 2023 bond with a coupon of 9.8% fell more than 25% to 32.25 cents on Monday, Reuters reported, citing data from Duration Finance. Modern Land shares have lost more than 40% this year.

The worsening situation highlights the impact of Evergrande, which is grappling with crushing $ 305 billion in debt, on China’s high-yield bond markets as property sales collapse and liquidity is drying up. Fears of financial contagion from Evergrande sparked a global rout and skidded stocks late last month.

Last week, luxury developer Fantasia Holdings defaulted on a $ 206 million bond.

As Evergrande is embroiled in a massive cash crunch, it grapples with repayments to more than 80,000 people with roughly $ 6 billion of its wealth management products, many of them employees.

Recent developments indicate that China will work to contain the damage caused by Evergrande, and that the country has the resources to do so, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management on Monday. “A systematic demolition of Evergrande would run counter to the country’s common prosperity initiative,” he added.

Trading in Evergrande and its real estate services unit has been halted in Hong Kong, since the latter raised a possible takeover offer last week.

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