China Evergrande Group on Tuesday missed its third round of bond payments in three weeks, intensifying market fears over contagion involving other property developers as a wall of debt payment obligations come due in the near-term.
Some bondholders said they did not receive coupon payments totalling US$148-million on Evergrande’s April, 2022; April, 2023; and April, 2024, notes due by 4:00 a.m. GMT on Tuesday, following two other payments it missed in September.
That puts investors at risk of large losses at the end of 30-day grace periods as the developer wrestles with more than US$300-billion in liabilities.
Evergrande did not immediately respond to a request for comment.
A total of US$92.3-billion bonds issued by Chinese developers will be due in the next year, Refinitiv data show.
“We see more defaults ahead if the liquidity problem does not improve markedly,” brokerage CGS-CIMB said in a note, adding developers with weaker credit rating are having difficulty in refinancing at the moment.
Trading of high-yield bonds remained soft on Tuesday following a rout in the previous session on fears about fast-spreading contagion in the US$5-trillion sector, which accounts for a quarter of the Chinese economy and often is a major factor in policy-making.
Shanghai Stock Exchange data showed the top five losers among exchange-traded bonds in morning deals were all issued by property firms.
Small developers Modern Land and Sinic Holdings were the latest scrambling to delay deadlines, after Evergrande and Fantasia missed their payments since September.
Modern Land’s dollar bond due 2023 plunged 25 per cent to 32.250 US cents on the dollar, while Sinic’s bond due 2022 rose 12 per cent to 19.35 US cents, yielding more than 1,380 per cent.
Modern Land, whose shares dropped more than 3 per cent to new low on Tuesday, had requested bondholders on Monday to delay a repayment due later this month for three months, while Sinic said it would likely default next week.
Aoyuan’s bond due 2025 declined 3.5 per cent while Sunac’s bond due 2024 lost 2.6 per cent.
On Monday, Fantasia Holdings’s unit limited trading in its Shanghai bonds, which is often done ahead of defaults.
While global attention has been focused on missed dollar debt payments by Chinese property issuers, market indicators suggested that worries about contagion and a slowing economy are spreading further.
Market players say the sell-off, however, appears limited to more riskier bond names.
“The market is trading more rationally now, according to different quality and rating of the companies, rather than selling off on the whole sector,” said Michael Wong, director at CP Securities based in Hong Kong.
The cost of insuring against a China sovereign default continued to rise on Tuesday, with five-year credit default swaps – which investors typically use as a hedge against rising risk – hitting its highest point since April, 2020.
The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index pulled back to 2,061 basis points on Monday evening U.S. time, just off its previous all-time high of 2,069 basis points on Friday.
Shares of several other property firms, however, fared better as markets bet on more loosening of policies following northeastern city of Harbin’s measures to support property developers and their projects.
Top developers Country Garden and Sunac China both rose 2 per cent.
Evergrande’s electric vehicles unit jumped more than 10 per cent after it vowed to start producing cars next year.
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