Coupon Deadline Looms; Kaisa Trading Halted: Evergrande Update

(Bloomberg) -- A unit of China Evergrande Group faces a key deadline for a coupon payment Saturday, while smaller rival Kaisa Group Holdings Ltd.’s shares were halted in trading after missing payments on fund products as the fallout spreads to other real estate firms. 

Kaisa’s dollar bonds rallied Friday after reports of plans to sell property assets valued at almost $13 billion to raise capital. Its shares and bonds had tumbled Thursday after the company said it has faced “unprecedented pressure on its liquidity” due to credit rating downgrades and a challenging property market.

The bond selloff at Shanghai Shimao Co. accelerated Friday, with its 5.6% bond due 2026 plunging 15.8 cents to 64.5 cents in Hong Kong, according to Bloomberg-compiled prices. Two onshore notes received 30-minute trading halts after their prices dropped sharply.

Asian investment-grade dollar bonds are on course for their biggest blowout in spreads in more than three months, as contagion from junk-rated Chinese property debt feeds into notes of better-quality developers in the nation.

Meanwhile, with Chinese authorities urging Evergrande’s billionaire founder Hui Ka Yan to use his own money to alleviate the company’s debt crisis, his personal balance sheet has attracted attention from bond investors.

Key Developments:

• Kaisa Bonds Jump on Plans to Sell $13 Billion of Projects
• Kaisa Shows China’s Three Red Lines Are Rubbish: Shuli Ren
• Evergrande’s Grim Lesson for China on Climate: David Fickling
• China’s Developer Bond Slump Deepens as Selling Spreads Onshore
• Kaisa Says Wealth Product It Guaranteed Has Missed Payment
• A 40% Dividend Yield Awaits the Brave: What to Watch in China
• China Is Blowing Up One of the World’s Most Lucrative Bond Bets
• Kaisa’s Missed Payment May Add to China Property-Bond Contagion: BI
• Snow Lake Shutters Asia Hedge Fund After Partners Leave Firm
• China Bonds Advance on PBOC’s $16 Billion Liquidity Injection

Hong Kong’s SFC Sees No Systemic Risk (5:20 p.m. HK)

Hong Kong’s Securities and Futures Commission sees no broader systemic risk from the troubles at China Evergrande Group after keeping a close eye on the exposure of brokers and banks, its chief executive officer said. 

The financial watchdog has conducted frequent stress tests on its regulated financial institutions to assess their risks and balance sheet exposures “way before Evergrande,” Ashley Alder told reporters on Friday.

“We have looked very very carefully at the institutional level, in particular exposures and expectations, in Hong Kong,” he said. “So far we haven’t seen anything that we would see as being of systemic importance, or which would cause us concerned as a systemic issue.” 

China Evergrande Reduces Stake in HengTen (5:15 p.m. HK)

China Evergrande Group reduced its stake in HengTen Networks Group Ltd to 22.98% from 26.55%, according to disclosure filings. 

It sold 330 million HengTen shares for HK$717.3 million ($92.1 million) over two deals on Thursday and Friday.

China Property Contagion Hits Asian High-Grade Bonds (4:45 p.m. HK)

Asian investment-grade dollar bonds are on course for their biggest blowout in spreads this week in more than three months, as contagion from junk-rated Chinese property debt feeds into notes of better-quality developers in the nation.

Yield premiums for Asian high-grade debt were little changed on Friday, according to a trader, setting them up to widen almost 5 basis points this week, a Bloomberg index shows. Concerns about Chinese property companies mounted Friday after junk-rated Kaisa and its Hong Kong-listed units were suspended from trading.

Spreads on a note of China’s biggest builder Country Garden Holdings Co., which is rated investment grade by Moody’s Investors Service and Fitch Ratings, have almost doubled this week, widening about 200 basis points to 803 on Friday alone. The yield premium on a Shimao Group dollar note that has the lowest investment-grade rating from Fitch jumped about 500 basis points Friday to 1502, more than doubling in the week, Bloomberg-compiled data show.   

China Bond Meltdown Brings World of Hidden Bills to Light (4:30 p.m. HK)

China’s property developers are struggling to pay bills that many of their bond investors didn’t know were there in the first place.

Missed payments on off-balance sheet IOUs such as high-yield consumer products, secretive loans and private bond guarantees have rocked China’s credit market in recent weeks. Dollar bondholders are struggling to know their place in the repayment queue in the event of a default, forcing a dramatic repricing of risk that’s all but frozen the primary market for developers.

Kaisa said on Thursday it failed to meet payments on wealth products, triggering a plunge in its bonds and shares. Fantasia Holdings Group Co. defaulted on a dollar bond last month only weeks after assuring it had sufficient working capital and no liquidity problems. Its failure to pay undermined the credibility of Chinese issuers just after Bloomberg reported China Evergrande Group was on the hook for an unknown bond issued by a separate entity. 

“A lot of these companies have a lot of private credit,” said Philip Tse, director and head of Hong Kong and China property research at Bocom International Holdings Co. “It’s very hard to say who is safe now anymore because the whole market has lost its refinancing capacity.”

Kaisa, Units Suspend Trading After Missed Payments (2:40 p.m. HK)

Shares of Kaisa and several units were suspended from trading in Hong Kong on Friday morning, a day after the Chinese developer flagged liquidity pressure and said it missed payments on wealth products it guaranteed.

Kaisa Capital Investment Holdings Ltd., Kaisa Health Group Holdings Ltd. and Kaisa Prosperity Holdings Ltd. were also halted. Kaisa Group was suspended pending the release of an announcement containing inside information, according to a filing.

Kaisa became a focus of investor concern after it canceled meetings with investors in October, triggering doubts about its liquidity and sending its dollar bonds lower. 

Kaisa has put 18 property projects in Shenzhen on the auction block with a combined value of about 81.8 billion yuan ($12.8 billion), South China Morning Post reported, citing a document.

China Developers Face Series of Defaults: Lombard Odier (8:30 a.m. HK)

“We’re on the brink of a systemic series of defaults in China real estate” that could wipe out appetite among longer-term global investors, according to Dhiraj Bajaj, head of Asian credit at Lombard Odier.

• Policy uncertainty and a possible string of missed payments from the sector, a large segment of Asia high-yield credit, isn’t something investors can absorb, he told Bloomberg
• Authorities need to “quell the panic” and prevent systemic defaults from continuing
  • “We think the situation has become so acute that we need to see a national rescue, in the form of national champions or a state fund coming to buy dollar debt, to signal they are the lender of last resort”

Junk Buyers Looking at $37 Billion Loss (8 a.m. HK)

In a sign of how severe China’s property bond rout has become, the nation’s most widely-owned junk debt is now worth $37 billion less than when first sold to investors.

The 320 notes included in a Bloomberg index of Chinese high yield dollar debt are valued at a combined $102.5 billion, versus their face value of $139 billion, according to data compiled by Bloomberg as of Nov. 3. Yango’s bonds are at the steepest discounts to where they were issued, with three notes trading at less than 13 cents. The index, predominantly made up of property firms, is down about 26% since May.

That valuation gap is likely to widen. With Chinese junk yields surging past 20%, refinancing upcoming maturities with new bonds has become too expensive. Regulatory limits on leverage mean highly indebted firms like Evergrande haven’t tapped the market in months. Fresh cash is hard to come by as slowing property sales drag on revenue, slumping shares reduce the value of listed assets and other disposals prove difficult to complete. Some developers even have dividends to pay.

Evergrande Bondholders Eye Yacht, Planes, Mansions (2:45 a.m. HK)

With Chinese authorities urging Hui to use his own money to alleviate Evergrande’s market-roiling crisis, the property tycoon’s personal balance sheet has become a key variable for bond investors trying to game out how long the developer can stave off default.

Measuring Hui’s financial firepower isn’t easy, given that many of his assets are held through an intricate web of companies and affiliates that can obscure their ultimate owner.

Still, Hui’s luxury assets alone could help cover the more than $400 million in bond coupons that are yet to come due or have grace periods ending this year. The possessions –- valued at an estimated $485 million -- include a yacht, business jets and houses under Hui’s name or affiliates of the developer. Last month, Evergrande paid two bond coupons before the end of a grace period following the pledge of some shares and a mansion. 

China Evergrande Group raised more than $50 million last month by selling two of its private jets, Dow Jones reported, citing people familiar with the matter. American aircraft investors bought the planes, it said.

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