Breaking News
Black Friday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Evergrande averting default to do little to revive China property bond sales

EconomyOct 22, 2021 13:10
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. An aerial view shows residential buildings at the construction site of Evergrande Cultural Tourism City, a China Evergrande Group project whose construction has halted, in Suzhou's Taicang, Jiangsu province, China October 22, 2021. Picture taken with a dr

By Scott Murdoch and Karin Strohecker

HONG KONG (Reuters) - China property companies could be locked out of offshore debt markets until early next year as global investors wait on the sidelines for embattled China Evergrande Group to work out its debt woes, fund managers and advisors said.

Even though Evergrande confounded market expectations by delivering $83.5 million to its Citibank trustee on Thursday to pay a bond coupon originally due on Sept. 23 and stave off imminent default, the move will do little to calm nervous property market investors, they added.

Instead, markets are likely to remain fractured which could lead to more asset sales and a scramble to lock in expensive private fund raising by lower-rated companies looking to refinance debt and avoid their own defaults in the next year.

"We may need to wait for full year results which likely happen at the end of the first quarter next year as investors will need to see how...tight the financials of the property developers are," PineBridge Investment's Arthur Lau said.

While Evergrande's payment was a positive, it still needs to make overdue coupon payments of $195 million, with the next major deadlines to avoid default on Oct. 29 and Nov. 10. It then has a further $340 million of coupon payments due on its offshore bonds between Nov. 1 and Dec. 28.

Lau said investors would be closely monitoring Chinese property sales, adding he expected capital markets to reopen at best in the first quarter.

"We do expect few more defaults before year end so it's hard to have (developers) come to market with such backdrop."

Data on Friday showed China's government land sales slumped for a second month in the fast-cooling property sector.

The real estate sector accounts for a quarter of China's overall bond stock and more than half of its high yield debt, according to JPMorgan (NYSE:JPM). The sector also has the highest share of high yield bonds at 69%.

Nearly $322 billion worth of bonds from mainland Chinese companies, in various currencies, are due to expire in the current quarter, according to Refinitiv, or 1,251 issues.

Over the next 12 months, China's property sector alone has $28.3 billion worth of offshore debt due. The largest before the end of 2021 is Shui On Development's $500 million deal in late November.

Fantasia Holdings Group Co., which missed a $206 million bond repayment in early October, has nearly $420 million worth of bonds maturing in mid-December.


Investors are likely to remain cautious about buying lower rated Chinese property debt until property sales and mortgage applications start to rise, fund managers say.

"Property companies were very active in the U.S. dollar bond market because of the lower interest rates that were on offer, but going forward it will depend on how international investors look at this sector," BOCOM International's head of research Hong Hao said.

"There are some high risk investors still interested, but the dynamics of the Chinese property market have changed."

A slowdown in debt issuance from the sector is already evident, with China's property developers issuing just $2.7 billion worth of offshore bonds in the third quarter, Refinitiv showed, the lowest quarterly amount since the end of 2017.

There has been little sign of a turnaround in October.

"Right now, it would be very challenging for any China property issuers to access the bond market," said Soo Chong Lim at JPMorgan, who expects more defaults over the next few months.

She would like to see some "signaling from the central government on stabilising both funding conditions and the physical market before tip-toeing back into the lower part of the credit curve."

JPMorgan calculates that the year-to-date default rate for China's high yield market stood at 5.2% and for high yield in the property sectors at 6.7% - both record highs.

Herbert Smith Freehills partner Alexander Aitken said the property firms were facing a loss of investor confidence which was unlikely to be resolved in the near-term.

"It could be tough for high yield Chinese property issuers with their usual investor community because we can already see bond yields rising very substantially," he said.

"The interesting question is whether the current situation will be restricted to the property sector or start to spread more broadly into the Chinese credit market."

Evergrande averting default to do little to revive China property bond sales

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email