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Property bonds take another hit as Chinese firms get the wobbles


Chinese property firms’ bonds have been hit with another wrecking ball as Evergrande looked set to miss its third round of bond payments in as many weeks and rivals Modern Land and Sinic became the latest scrambling to delay deadlines.

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High-yield Chinese bond markets were routed once again as fears about fast-spreading contagion in the $US5 trillion ($A6.8 trillion) sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment.

Meanwhile, the Wall Street Journal reported that Chinese President Xi Jinping is launching inspections of financial institutions to see if private firms like Evergrande had been too close to state-owned banks, investment firms and financial regulators.

Large lenders to Evergrande included financial conglomerate Citic, which is being scrutinised, the WSJ reported.

Citic was not immediately available for comment.

Weary investors had been holding out little hope that Evergrande would suddenly stump up Monday’s near $US150 million of coupon payments but the fact bondholders said they had not received anything this time either just bolstered expectations for a full-scale default.

“The key for offshore holders is the next couple of weeks and whether any payment or communication will come from the company in relation to its first missed offshore coupon,” wrote Craig Erlam, Senior Market Analyst, UK & EMEA, at forex trading firm OANDA in a research note on Monday.

Erlam wrote that it was “highly unlikely” Evergrande would make the payment “considering how the last two deadlines have gone”.

Once China’s largest developer, Evergrande has more than $US300 billion in liabilities that are now at risk.

The cash-strapped property developer’s troubles and contagion worries have sent shockwaves across global markets and the firm has already missed payments on US dollar bonds, worth a combined $US131 million, that were due on September 23 and September 29.

CST Group Limited, an investment holding company, said in a statement on Monday that it sold 10.5 per cent China Evergrande Notes and 11.5 per cent China Evergrande Notes for $US815,000 and $US702,000.

Other signs of stress included smaller developer Modern Land asking investors to push back by three months a $US250 million bond payment due on October 25 in part “to avoid any potential payment default”.

Sinic Holdings said it too was likely to default next week as it didn’t have enough financial resources to make its remaining bond payments this year.

It has one at the start of next week, although that bond was already down 75 per cent.

Modern Land’s April 2023 bond with a coupon of 9.8 per cent plunged more than 25 per cent to 32.25 US cents on the day, according to financial data provider Duration Finance, while the company’s shares have lost a third of their value over the last month.

Kaisa Group, which was the first Chinese property developer to default back in 2015, also had some of its bonds slump to well under half their face value.

R&F Properties and Greenland Holdings, which both have prestige projects in global cities like London, New York and Sydney, were also widely sold.

“It’s a disastrous day,” said Clarence Tam, fixed income portfolio manager at Avenue Asset Management in Hong Kong, highlighting how even some supposedly safer “investment grade” firms had now had 20 per cent wiped off their bonds.

“We think it’s driven by global fund outflow… Fundamentally, we are worried the mortgage management onshore hits the developers’ cash flow hard,” he added, referring to concerns people could stop putting deposits down on new homes.

Analysts at JPMorgan also highlighted how international investors were now demanding the highest ever premium to buy or hold “junk”-rated Chinese debt.

“Evergrande’s contagion risk is now spreading across other issuers and sectors,” JPMorgan’s analysts said.

Another London based analyst who asked not to be named said: “Slowly and gradually we are seeing the rest of the Chinese property sector fall apart”.

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