An aerial photograph taken on September 17, 2021 shows a housing complex by Chinese real estate developer Evergrande in Huai’an, eastern Jiangsu Province, China.
Stringer | AFP | Getty Images
First test of Evergrande debt crisis This week, investors are watching whether a confused Chinese real estate developer can pay interest on bonds or default.
The company will pay $ 83 million worth of interest on Thursday, according to data from S & P Global Ratings.
According to market data provider Refinitiv Eikon, Evergrande’s five-year US dollar-denominated bond was initially issued at around $ 2 billion, but prices are now plummeting.
According to Refinitiv Eikon, yields on the bond surged from just over 10% earlier this year to 560%. The bond is expected to mature in March 2022.
Another interest payment on the 7-year US dollar bond is scheduled for next Wednesday.
“What happens on Thursday promises to be somehow a significant event for the market, bigger than the FOMC results that probably happened just a few hours ago,” Ray Atril told CNBC. Investors are watching carefully.
Analysts and market watchers mainly expect Evergrande Miss Thursday’s interest payments. However, it will not be technically the default unless you make the payment within 30 days.
S & P Global Ratings said Monday that the default is “likely”.
“In fact, the Evergrande Group has already missed the bank’s interest payments and has fallen into a technical default,” said Vishnu Barasan, head of economics and strategy at Mizuho Bank.He said that the Chinese government was a major bank and a real estate giant You will not be able to pay interest on the loan It was scheduled for this Monday.
“The risk of missing bond coupons later this week still gives us a lot of ability to stimulate capital markets, given that Evergrande accounts for about 11% of all high-yield bonds in Asia,” Barasan said in a note on Tuesday. “.
According to analysts, institutional and other foreign investors are more likely to be affected than domestic Chinese investors if these initial defaults occur.
Onshore RMB-denominated bonds may take precedence over offshore dollar-denominated bonds. Offshore bonds are primarily held by institutional or foreign investors, while domestic retail investors in China are more likely to own onshore bonds.
“Obviously, fixed income investor optics, paid when retail wealth management product owners and homebuyers are far from clarity, aren’t a solution, much less successful,” Barasan told CNBC. Said in an email.
Therefore, the case of treating the obligations of individual investors in wealth management products more favorably is “strong given the angle of social stability in this regard,” he said.
Protests by angry homebuyers and investors have recently occurred in some cities, and social unrest is an important concern.
last week, About 100 investors have appeared According to Reuters, Evergrande’s headquarters in Shenzhen are forming a chaotic scene, demanding repayment of overdue financial product loans.
Therefore, domestic investor priorities influence the default risk of offshore dollar-denominated bonds held primarily by institutional or other foreign investors compared to onshore bonds held primarily by domestic investors. increase.
“But an additional concern is whether offshore bond coupons are favored over onshore bond coupons, especially given the asymmetric arrangement in which offshore defaults do not trigger crossdefaults (onshore defaults are offshore crossdefaults). Trigger)) ”. Cross-default occurs when a default triggered in one situation spreads to another obligation, leading to a broader transmission.
“In other words, will Evergrande choose offshore bond defaults while respecting its onshore commitments?” Barasan asked.
UBS, HSBC and BlackRock have accumulated Evergrande bonds over the past few months, according to Morningstar Direct data.
Patrickge, Manager Research Analyst at Morningstar, said:
According to Morningstar, this is the top fund with the highest exposure to Evergrande bonds.
- Fidelity Asia High Yield Fund
- UBS (Lux) BS Asian High Yield (USD)
- HSBC Global Investment Fund-Asia High Yield Bond XC
- PimcoGIS Asia High Yield Bond Fund
- BlackRock BGF Asia High Yield Bond Fund
- Allianz Dynamic Asia High Yield Bonds
— — Brittany Dawe of CNBC contributed to this report.
Bond interest payments, impact on investors
Source link Bond interest payments, impact on investors