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Payment Test Looms; Junk Bonds Rally: Evergrande Update

Published 10/11/2021, 05:26
© Reuters.

(Bloomberg) -- China Evergrande Group faces its biggest test yet Wednesday with $148.1 million of coupon payments due on three dollar bonds, while the broader junk bond market rallied on a report China may make it easier for developers to sell debt.

In other developments, Evergrande’s electric-vehicle unit sold shares at a deep discount, and Fantasia Holdings Group Co. plunged as much as 52% in Hong Kong following a six-week halt after the company’s surprise default. 

The Securities Times report on debt issuance rules sparked what would be the biggest jump in three weeks for China’s junk-rated dollar bonds. Higher-quality issuers such as Country Garden Holdings Co. and CIFI Holdings Group Co. saw some of their bonds rise more than 4 cents. Before Wednesday’s rally, a Bloomberg index for China’s high-yield market had dropped 13 of the last 14 trading days, putting yields at 24.6%.

Key Developments:

  • Fantasia Plunges 50% After Month-Long Trading Halt
  • Evergrande’s EV Unit to Raise HK$500 Million in Share Sale
  • Property Investment in China Is at Risk From Evergrande: BI
  • China Developer Kaisa Cut Deeper Into Junk as Deadlines Loom 
  • Shimao Group Holdings Cut to Junk by S&P; Outlook Negative
  • China Bond Selloff Spreads to High-Grade Tencent (HK:0700), Banks 
  • China Property Stress Spurs Fed Warning as Bond Losses Widen 
  • Shimao Says Unit Transfered Funds for Bond Interest Payments

China Fallen Angel Risks Flare as Shimao Cut to Junk (12:30 p.m. HK)

Major Chinese property developer Shimao Group Holdings Ltd. lost its investment-grade rating at S&P Global (NYSE:SPGI) Ratings, adding to concerns about a spate of downgrades amid a property industry debt crisis that’s already pushed some firms’ borrowing costs to decade highs.

Shimao’s long-term rating was downgraded to BB+ from BBB- with a negative outlook, according to a S&P statement Wednesday. That reverses a move S&P made just seven months ago, when it raised the firm to BBB-. 

The developer is China’s 13th biggest by contracted sales and among the largest property debt issuers with about $10.1 billion in outstanding local and offshore bonds. The company already has a junk Ba1 long-term rating from Moody’s Investors Service. It still has an investment-grade rank of BBB- at Fitch Ratings.

 

Fantasia Plunges After Month-Long Trading Halt (9:35 a.m. HK)

Fantasia shares opened 50% lower at HK$0.28 in Hong Kong after trading was suspended for more than a month. The developer’s woes have been mounting after two directors quit the troubled Chinese developer last month and it defaulted on a dollar bond. 

Evergrande Faces Payment Test as Grace Periods End (8:20 a.m. HK)

Evergrande is facing its biggest payment test since signs of a liquidity crisis emerged at the firm five months ago. 

Investors are waiting to see if the embattled developer makes coupon payments totaling $148.1 million for three dollar bonds before the end of 30-day grace periods Wednesday. Evergrande missed the initial interest deadlines last month, Bloomberg-compiled data show.  

The due date looms as credit-market stress spreads beyond China’s junk-rated builders. Higher-quality dollar bonds are suffering their worst selloff in months, as investors grow increasingly concerned about the impact on larger property firms and the broader economy. 

While there’s been no indication that Evergrande will miss the payment, any such development could also trigger cross-default clauses among the builder’s $19.2 billion of outstanding dollar notes and give creditors more room to negotiate.  

Developer CIFI Plans Rights Issue After Bond Market Shuts (8:15 a.m. HK)

With the bond market all but closed for China’s embattled real-estate industry, one developer is tapping shareholders for fresh capital to weather the storm.

The planned rights issue from Hong Kong-listed CIFI Holdings Group Co. offers a potential funding road map for Chinese property companies with highly concentrated ownership. CIFI, led by Chairman Lin Zhong, is seeking to raise as much as HK$1.68 billion ($216 million), according to a filing Tuesday.

Rules for China Developers to Issue Bonds May Be Eased: Report (8:13 a.m. HK)

China is likely to loosen controls for domestic real estate companies to issue local-currency bonds soon as part of efforts to prevent a further deterioration in their financing, according to the official Securities Times.

The easing will center on the interbank bond market, which has seen issuance from developers fall in the past year. Banks and other institutional investors will resume “blood transfusions” for real estate enterprises through bond investment, the Securities Times said Wednesday in a front-page report. 

Authorities sent the policy signal at a meeting on Tuesday between some developers and the National Association of Financial Market Institutional Investors, which is under the country’s central bank and shares oversight of corporate bond issuance in the interbank market.

Evergrande NEV to Raise HK$500m in Stock at Discount (8:10 a.m. HK)

China Evergrande Group’s electric-car unit plans to raise HK$500 million ($64 million) in a share sale, which it says will be used to put its long-delayed vehicles into production. 

The stock was priced at HK$2.86 apiece, a 20% discount to yesterday’s closing price, China Evergrande New Energy Vehicle Group Ltd. said in a statement Wednesday. That’s way off the record high of HK$72.25 the stock reached in February, before a selloff as the unit’s parent company battled to stave off collapse. 

As recently as September, Evergrande NEV warned of a serious shortage of funds, saying it had suspended paying some of its operating expenses and some suppliers had stopped work, stoking concern it wouldn’t be able to start mass production of its long-awaited electric vehicles. 

A look at Evergrande’s maturity schedule:

 

 

©2021 Bloomberg L.P.

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