Evergrande default concerns push Asian junk bond yields to 10-year highs

Fearing that more and more developers in China are facing defaults, Evergrande may miss the deadline to pay three interest payments to international bondholders because the risky yield on Chinese corporate bonds is close to a ten-year high.

According to two people familiar with the matter, the global debt-ridden developer will pay a total of US$148 million in interest on US dollar-denominated bonds on Monday, but bondholders have not yet received any funds. These bonds were last traded at 21-22 cents per dollar.

Evergrande So missed At the end of last month, a crucial $83.5 million in interest was paid for bonds maturing next year. The missed payment triggered a 30-day grace period before the company officially defaulted. It has now missed at least five bond interest payments.

Due to slowing sales and Beijing’s pressure on developers to reduce debt, many of Evergrande’s peers are also close to defaulting. Developers’ expanding liquidity crisis has triggered an assessment of the health of the broader Chinese real estate industry.

Asia’s High-yield bond marketAfter decades of rapid urbanization, Chinese developers have become one of the largest issuers, and panic transactions in recent days have driven yields higher.

Since last Friday, the return on the ICE index, which tracks Chinese corporate issuers in the Asian dollar high-yield market, soared to 22%, the highest level since 2009, compared with 13% and 10% in early September and June, respectively.

Chinese developer Sony Holdings said late on Monday that bonds due this month “may be subject to default” because the company does not have sufficient “financial resources”. These bonds are traded at approximately 25 cents per dollar.

Last week, Fantasia, a luxury goods developer founded by the niece of former Chinese Vice President Zeng Qinghong, Breach of contract USD 206 million in bonds.

So far this week, credit default swaps on five-year Chinese sovereign bonds have risen by 8 basis points to 59 basis points, the highest level since April 2020. Analysts believe this is related to real estate sales.

“The problems in the Chinese real estate industry are now affecting investors’ overall perception of systemic risk,” said Charles MacGregor, head of Lucor Analytics Asia. He added that China’s high-yield bonds are “under great pressure due to a lack of buyers.”

Another developer, China Hyundai Land, said on Monday that it will Try to extend The US$250 million note matures in three months, and Sunac China Holdings In recent weeks, the company has been under scrutiny due to a draft letter to the local government warning of a “turning point” in the real estate industry.

After a series of incidents, Evergrande Securities’ sentiment deteriorated sharply in July, including freezing A deposit in a mainland bank and sales of some projects were suspended.

In late August, the developer, which owns nearly 800 projects in hundreds of cities in China and reduced debt under government pressure for a year, warned that Default Risk.

The sell-off of its bonds quickly spread to other highly leveraged developers, including Fantasia and Guangzhou R&F, whose bonds have fallen sharply in recent days.

Due to concerns about the developer’s ability to refinance, market volatility has intensified, plus Sales slowdown New houses and land in the Chinese real estate industry account for about a quarter of the Chinese economy.

Evergrande’s international bondholders have hired investment banks Moelis and Kirkland & Ellis law firm to advise them before they are expected to become one of the Chinese bond markets. The largest debt restructuring in history process.

Advisors told bondholders on Friday night that they have received No “meaningful participation” From the company and expects that the default is “imminent.”

Trading in Evergrande’s shares was suspended in Hong Kong, and its real estate services division also suspended trading, which took note of a potential takeover offer last week.

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