Evergrande’s PBOC, the default risk of other developers

An aerial photograph of the “River View House” on the Changjiang side. Yichang City, Hubei Province, October 16, 2020.

Costfoot | Barcroft Media | Getty Images

The impact of China’s real estate sector is showing no signs of diminishing as more developers face the threat of default. Evergrande who is indebted to me loom.

All eyes are on Chinese real estate developers Cynic HoldingsWarned last week that it was unlikely to repay $ 250 million worth of offshore debt to be paid on Monday. As of noon, the developers hadn’t contacted me yet. CNBC has contacted the company.

On friday, another developer, China Property GroupSaid it issued $ 226 million worth of bonds by default because it couldn’t secure funds by the maturity date of October 15.

They weren’t the first — Fantasia Holdings In early October, we failed to pay $ 206 million worth of bonds.

Last week, rating agencies made a new downgrade for a Chinese real estate company.

This week, Evergrande will officially default if you do not pay interest on US dollar-denominated offshore bonds. The due date is late September, but there is a 30-day grace period. The company has been silent about coupon payments for the other four bonds that have expired in the last few weeks.

These developments■ China’s central bank said on Friday The risks posed by Evergrande are “controllable” and most real estate businesses in the country are stable.

However, the People’s Bank of China also said that real estate companies that issued bonds abroad (called offshore bonds) should actively meet their debt repayment obligations.

On Sunday, Governor Yi Gang of the Central Bank made additional comments. He said authorities would try to prevent the Evergrande problem from spreading to other real estate companies, According to Reuters.

He also said the Chinese economy was “good”, but faced challenges such as default risk from “management mistakes” in certain companies, the news agency reported.

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China’s real estate developers have grown rapidly after years of excessive debt, and authorities began rolling out a “three redline” policy last year. The policy imposes limits on debt in relation to a company’s cash flows, assets and capital levels.

Things came to mind after the policy began to suppress developers. Evergrande, the world’s most beloved developer, warned twice last month that it could become the default.

Since then, I have missed three interest payments on US dollar-denominated bonds. Inventory has been suspended since October 4th Rating agencies downgraded other real estate companies Concerns about their cash flow.

China’s real estate bond trading surged from more than $ 600 million in August to more than $ 1 billion so far in October, according to data from the electronic bond trading platform MarketAxess. Evergrande’s 8.75% bond, which matures in 2025, is currently said to be the second busiest emerging market bond on the platform.

More rating downgrade

Last week, another Chinese real estate company made a new downgrade.

CNBC is asking for comments from companies, but hasn’t responded yet.

1. China Qingyuan
Friday night S & P global rating downgraded
China Aoyuan, Is one of the largest developers in Guangdong Province, China, and focuses on the Greater Bay Area of ​​China. Rating agencies pointed out the high debt and said the company’s move to reduce debt would slow next year.

It also flagged the maturity of Aogen’s “significant” bonds due in 2022. This will put more pressure on real estate companies.

One thing we can be confident about is that the real estate sector is struggling.

Julian Evans-Pritchard

Senior China Economist, Capital Economics

“The company’s reduced visibility into revenue growth and continued margin pressure will hinder its efforts to de-leverage. Weakened cash generation will face significant maturity in 2022, leading to Aoyuan’s liquidity. Will also put pressure on it. “S & P said.

2. Modern land
Fitch also downgraded Modern land On Friday, developers quoted a move to postpone the repayment of $ 250 million in offshore debt for three months.

3. Greenland Holding
Prior to Friday’s downgrade, Thursday’s S & P downgraded Greenland Holding, one of the leading real estate developers in cities such as New York, London and Sydney. He also mentioned access to “impaired” financing that limits the ability of the real estate industry to survive the downturn. Fitch said he expects the company’s ability to generate cash to slow down.

“Greenland bond prices have fallen sharply again after investor concerns about the sector have risen,” Fitch wrote. “The long-term weakness of bond prices can hurt the trust of a company’s borrowers, suppliers and buyers.”

China’s Real Estate “Struggle”: Capital Economics

Research firm Capital Economics said in a note on Friday that new home sales have plummeted in recent weeks and are now 25% below 2019 levels.

“The Evergrande blunder probably raises concerns for homebuyers about whether developers will respect their pre-sale promises,” said Julian Evans Pritchard, senior China economist at Capital Economics. Said.

Meanwhile, developers’ land purchases are declining to “beat the hatch” to overcome slower sales and funding constraints, economists added. This shows that new housing projects will go further back in the coming months.

“One of the things we can be sure of is that the real estate sector is struggling,” he writes.

We look forward to further policy easing in the real estate sector in the future as authorities aim to boost housing demand. This could include reducing the minimum down payment requirements for first-time homebuyers and cutting interest rates to reduce mortgage costs, Evans-Pritchard wrote.

“We don’t expect policy makers to ease restrictions on developers’ funding or sharply restore overall credit growth,” he said. “We believe leadership continues to work to reduce the leverage of developers.”

Evergrande’s PBOC, the default risk of other developers

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