Evergrande Contagion Fear Returns as Bonds Tumble Below 30 Cents
(Bloomberg) -- A worsening selloff in China Evergrande Group’s dollar bonds is once again spreading to other developers, raising the stakes for Chinese authorities as they mull whether to support billionaire Hui Ka Yan’s embattled property empire.
One of the company’s most widely held bonds is indicated at 28.2 cents on the dollar Thursday, set for a record low, after plunging nearly 6 cents the previous day. The rout -- triggered by Evergrande’s warning of a potential default if its asset-sale plans fail to materialize -- is prompting a selloff in the bonds of other weaker-rated property firms.
Collateral damage has been so far concentrated in junk-rated developers including Fantasia Holdings Group Co. and Guangzhou R&F Properties Co. The latter company’s dollar note due 2024 fell 6.5 cent to 60.3 cents, according to Bloomberg-compiled prices. Declines in the broader Chinese high-yield space ranged from 0.25 cent to 0.5 cent on the dollar, according to credit traders, extending the previous day’s drop.
Investors in China’s $12 trillion bond market have become fixated on Evergrande as they weigh the ramifications of a potential default by the world’s most indebted developer.
With bondholders, banks, suppliers and homebuyers exposed to the real estate giant, any collapse could roil China’s economy. While regulators urged the company to resolve its debt woes in a rare public rebuke last month, they have said little about whether state support is forthcoming. President Xi Jinping has been trying to wean the Chinese financial system off implicit government guarantees that fueled years of outsized borrowing.
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Evergrande said late Tuesday that its total liabilities rose to a near-record 1.97 trillion yuan ($305 billion), mainly due to swelling bills to suppliers. Cash and equivalents plunged to a six-year low.
“In the face of the selloff, developers should be panicking,” said Eddie Chia, portfolio manager at China Life Franklin in Hong Kong. “They have been waiting for a window to tap the market. With funding squeezed it will eat into their already tight margins.”
Chia said he expects more defaults and consolidation in the property industry over the next year, along with more investor differentiation between companies with weak and strong balance sheets. Dollar bond sales from Chinese property firms fell in August to the lowest level since the Lunar New Year holiday in February, data compiled by Bloomberg show.
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