Evergrande jitters spread through China property bond market

Evergrande Real Estate Group Ltd updates Sign up to myFT Daily Digest to be the first to know about Evergrande Real Estate Group Ltd news. Bond yields at some of China’s biggest real estate companies are rising in a sign that fears over debt problems at leading developer Evergrande are […]

Evergrande Real Estate Group Ltd updates

Bond yields at some of China’s biggest real estate companies are rising in a sign that fears over debt problems at leading developer Evergrande are spreading more widely through the sector.

The bonds of Guangzhou R&F, a property developer, edged lower in Shanghai on Tuesday to 60 per cent of their face value, following falls of more than 20 per cent a day earlier. The moves came after Moody’s, the rating agency, downgraded the group’s credit rating and warned over its ability to refinance.

Fantasia Group, another property developer that also faces refinancing concerns, said in a statement to the Hong Kong stock exchange yesterday evening that it had made several purchases of $6m of its own bonds, one of which matures in December and had sunk to 78 cents on the dollar.

Refinancing worries have grown following a furious sell-off in the debt and equity of China Evergrande, the world’s most indebted property developer, which is undergoing a liquidity crisis that forced it last week to warn over the risk of default. On Friday, trading in some of its bonds in Shanghai and Shenzhen was halted.

As well as choppy trading on international markets, where they are some of Asia’s biggest high-yield borrowers, Chinese property developers are also grappling with tighter credit conditions and weaker sales within China. Beijing introduced new rules last year to constrain their leverage.

“Overall the funding conditions have tightened and the offshore bond market is also getting more volatile,” said Kaven Tsang, a vice-president at Moody’s.

“That actually has some negative implications on the market as a whole,” he added. “The refinancing risk has increased.”

The issues facing Evergrande, which is rushing to dispose of assets to raise cash and pay off its debts, have already helped to push yields up across the China high-yield market, according to an index from ICE and Bank of America, with average yields rising to 13 per cent in late August compared with below 10 per cent in June.

In language reminiscent of Evergrande’s challenges, Moody’s late last week estimated that Guangzhou R&F did not have enough cash to cover its debt repayments in the next year and a half, meaning it would need to rely on “new financing or asset sales”.

Fantasia Group said in the filing that its purchases of its own bonds would “reduce the company’s future financial expenses and lower its financial gearing level”. 

In a separate filing late on Friday, it said the bonds had also been bought through companies wholly owned by Fantasia’s founder Zeng Jie, niece of Zeng Qinghong, a former vice-president of China.

Additional reporting by Hudson Lockett in Hong Kong

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