News World Asia Property market debt crisis fan fears for China’s economy

Property market debt crisis fan fears for China’s economy

After pumping the economy with easy credit for developers, China has literally millions of empty apartments - and now it's crunch time. Photo: YouTube
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Bonds and shares issued by Chinese property firms have slumped as onshore markets returned from a holiday with few clues as to how regulators propose to contain the contagion from China Evergrande Group’s debt problems.

Evergrande, whose shares remain suspended since it requested a trading halt on Monday pending a major transaction announcement, is facing one of the country’s largest defaults as it wrestles with more than $US300 billion ($A411 billion) of debt.

The company last month missed coupon payments on two dollar bond tranches and faces three more early next week totalling nearly $US150 million.

The possible collapse of one of China’s biggest borrowers has triggered worries about contagion risks to the property sector in the world’s second-largest economy, as its debt-laden peers are hit with rating downgrades on looming defaults.

That uncertainty battered bonds issued by property firms such as Kaisa Group, Central China Real Estate and Greenland over China’s National Day break.

Trading suspended

On Friday, onshore bonds caught up to the selling. The Shanghai Stock Exchange suspended trading of two bonds issued by developer Fantasia Group China Co, with one dropping more than 50 per cent, after controlling shareholder Fantasia Holdings Group missed the deadline on a $US206 million international market debt payment on Monday.

In a statement on Thursday evening, Fantasia Group said its operations were normal and it was maintaining close contact with investors. It also said it was “actively promoting debt service protection measures.”

Onshore bonds of Xiamen Yuzhou Grand Future Real Estate Development, China Aoyuan Group, Yango Group and Guangzhou R&F Properties also slumped on Friday.

Worries around Evergrande contagion also hit mainland share prices, pulling an index tracking the property sector down 1.5 per cent by midday, against a rise of more than 1 per cent for blue-chip shares

In Hong Kong, the Hang Seng Property and Construction index fell 0.59 per cent, more than a 0.21 per cent drop for the broader Hang Seng index.

Bloomberg reported on Thursday that some dollar bondholders were invited by advisers to a call on Friday to discuss strategy and how to broaden the group.

A group of bondholders previously selected investment bank Moelis & Co and law firm Kirkland & Ellis as advisers on a potential restructuring of a tranche of bonds, two sources close to the matter said in September.

Chinese regulators have not made any comments specifically on Evergrande during the week-long holiday from October 1, although the central bank last Wednesday urged financial institutions to co-operate with relevant departments and local governments to maintain the “stable and healthy” development of the property market and safeguard housing consumers’ interests.

In a commentary late on Thursday, the state-backed Global Times said that authorities’ adherence to debt caps known as the “three red lines” indicated that “China has its own set of priorities and maintains the focus on deflating the real estate bubble and reducing risks.”

While a sale of assets would temporarily ease concerns around Evergrande’s cash flows, analysts also reckon the indebtedness of Evergrande and some other Chinese property firms is too large to be resolved quickly.