The Chinese property developer has missed another round of coupon payments, marking the third deadline the corporation has missed in the last three weeks. As the cash-strapped property giant scrambles to survive, investors of Evergrande risk losing large sums of money towards the end of the 30-day grace period.
Evergrande Group has over $300 billion in liabilities. The group’s inability to pay off its dues on time has renewed the market’s fears of contagion.
Its bondholders reported that they had not received coupon payments worth $148 million on Evergrande’s April 2022, April 2023, and April 2024 notes due on Tuesday. The company has already missed two other payments in September.
Rising number of expected defaults
As per the data from Refinitiv, a total of $101.2 billion in bonds issued by Chinese developers will be due next year. Brokerage CGS-CIMB said in a note, “We see more defaults ahead if the liquidity problem does not improve markedly”.
Trading of high-yield bonds remained soft on Tuesday after a collapse during the previous trading sessions driven by fears about the ripple effect of contagion in the $5 trillion sector. The sector makes up a quarter of the Chinese economy and is regularly a critical factor in policymaking.
According to the Shanghai Stock Exchange data, the top five losers amongst exchange-traded bonds in morning deals were all issued by property firms.
Following the missed deadlines in September by Evergrande and Fantasia, small developers namely Modern Land and Sinic Holdings also joined the developers trying to delay deadlines.
Modern Land’s dollar bond due 2023 plummeted by 25 pc to reach 32.250 cents on the dollar, while Sinic’s bond which is due in 2022 hiked by 12 pc and touched 19.35 cents, yielding more than 1380 pc.
Modern Land’s shares fell to a new low dropping more than 3 pc on Tuesday. The company had requested bondholders earlier on Monday to delay a repayment that is due later this month for three months, while Sinic warned it was close to defaulting next week.
Worries of a broader fallout
While the international markets have kept an eye on the debt payments missed by Chinese property issuers, worries over contagion and the slowdown of economies worldwide are on the rise.
However, market players say the sell-off, seems limited to riskier bonds.
Director at CP Securities based in Hong Kong Michael Wong says, “The market is trading more rationally now, according to different quality and rating of the companies, rather than selling off on the whole sector.”
The 5-year credit default swaps which are generally used by investors as a hedge against rising risk hit their highest point on Tuesday since April 2020 indicating the rise in the cost of insuring against a China sovereign default.
The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index pulled back to 2,061 basis points on Monday, just off its previous record high of 2,069 basis points earlier on Friday.
It must be noted that shares of numerous other property firms, fared better as markets bet on the loosening of policies following the northeastern city of Harbin’s steps in support of the property developers and their projects.
Top developers Country Garden and Sunac China both gained 2 pc.
Evergrande’s electric vehicles unit spiked more than 10 pc after it vowed to commence the production of cars next year.