Dec. 07, 2021, 10:18 a.m.
Barely three months after narrowly avoiding collapse, the world’s most indebted developer, China Evergrande Group, is again on the brink, and investors are still unsure to what extent or for how long the problems could. reverberate.
With more than $ 300 billion in liabilities and more than 1,300 real estate projects, Evergrande has been the child star of a real estate crisis in China this year that has already destroyed nearly a dozen small developers, reports Reuters.
Evergrande could still pay an overdue $ 82.5 million bond payment that has now reached the end of its grace period, but he warned that would not be the case.
At a time of slowing real estate sales in China, a messy Evergrande default could accelerate financial strains in the real estate industry, said Logan Wright, director of Chinese market research for consultant Rhodium Group.
A resolution must represent billions of yuan owed to contractors and suppliers.
“At the moment, there is very little clarity on the potential sources of this funding, although there is more confidence that the authorities will react with some resolve to limit the financial contagion,” said Wright.
After narrowly avoiding becoming China’s biggest default with 11-hour payments at the end of a grace period in the past two months, Evergrande is back on the ledge again.
But unlike a few months ago, the fallout has been largely contained in China, and with policymakers in Beijing becoming more vocal and markets more familiar, the consequences of Evergrande’s problems will be less widely felt, investors said.
Liqian Ren, a director of WisdomTree who tracks China, expects Evergrande to default.
Still, she pointed to Friday’s central bank statement and other similar official statements, saying Evergrande was an individual problem and long-term funding functions would not suffer.
âContagion happens when you have something that nobody knows who owns what,â and events move quickly, she said. On the contrary, she added, a default by Evergrande would look more like the case of HNA Group, whose restructuring plan was approved by creditors in October.
Tracy Chen, fixed-income portfolio manager for Brandywine Global Investment Management, also said the broader risks of an Evergrande collapse were low.
âI think the systemic risk is very unlikely and the regulators have done a decent job of doing what they call a ‘limited bang’,â Chen said.
China’s central bank has injected 1.2 trillion yuan ($ 188 billion) into the banking system, its second of its kind since July, and the regional government where Evergrande is based has said it is intervening now.
RISK OF CONTAGION
In China, the question for industry experts is whether this can prevent even more contagion.
Since the October dodge, a handful of Evergrande’s smaller rivals have either disappeared or restructured. Kaisa, China’s first mortgage default in 2015, which has more than $ 3 billion in debt to refinance next year, is also in serious conflict.
âGenerally speaking, nothing has changed much (since the Evergrande deadline in October) but the mood of the market has changed,â Seaport Global analyst Himanshu Porwal said, highlighting the series. smaller flaws.
It was positive that provincial governments wanted to get involved in cases like Evergrande’s, he said, but none of the state-owned real estate companies had participated in the company’s plans to alleviate its cash crunch.
In the meantime, the damage inside the country continues.
Chinese HY real estate bonds had their worst year on record this year, losing more than a third of their value on average, while Evergrande, Kaisa and defaulters like Fantasia were down at least 80%.
JPMorgan already has a total of 11 defaults this year and with land sales plummeting over 55% year-on-year and home sales themselves down 25% in October, more are expected.
He thinks Beijing needs to be more direct with his support.
“To prevent contagion from cascading down the credit curve, regulators should consider stabilizing both physical demand and financial markets,” said Frank Pan, head of corporate research in Asia.
“The problem is, if regulators fail to prevent large-scale defaults in the industry, we could potentially see more bonds trading at troubled levels,” adding that even higher-quality firms “may find it more difficult to refinance.