Evergrande default threatens China contagion

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Chinese company Evergrande.(photo:twitter)

New Delhi, Oct 20 – The rescue of embattled Chinese property company Evergrande appears to have stalled, leaving the developer on the brink of default and threatening to unleash contagion through the countrys giant real estate sector, home prices and economy, The Guardian reported.

The problems enveloping Evergrande, which has eyewatering total debts of $305 billion, have hung over global financial markets in recent weeks and helped curb China’s post-pandemic recovery, the report said.

But the crisis could deepen further if Evergrande fails to meet a deadline of Saturday night to stump up a $83.5 million bond interest payment, triggering an official default.

Evergrande has already been given a 30-day grace period to make the repayment after missing the initial deadline back in September. It has since missed other key offshore, dollar-denominated bond payments worth another $193.3 million. The clock is now ticking on those debts as well, the report added.

The sprawling property-to-electric cars empire founded by former steel executive Xu Jiayin in the mid-90s has been scrambling to offload assets in order to pay back some of its loans. Its Chinese creditors are expected to be prioritised, with foreign investors at the back of the queue.

Shares in its main Hong Kong listing have lost 80 pert cent in the past year and have been suspended since October 4 pending an announcement on how it is going to be rescued.

But there were signs that the process has not been running to plan, raising the prospect that Beijing will be forced to engineer a dismantling of Evergrande, the country’s second-biggest developer, by absorbing most of it into existing state-owned enterprises, the report said.

A Chinese developer of luxury apartments missed $315 million in payments to lenders, sparking fears that financial strains in the country’s outsized proprerty sector are spreading beyond the troubled Evergrande conglomerate, CNN reported.

Fantasia Holdings, a Shenzhen-based developer, missed repaying $206 million worth of bonds that matured Monday, the company said in a stock exchange it is now assessing “the potential impact on the financial condition and cash position of the group”.

Separately, the property management unit of Country Garden, China’s second largest developer by sales after Evergrande, said in a filing that Fantasia had failed to repay a company loan of about 700 million yuan ($109 million). Fantasia had informed the company that it would probably “default on [its] external debts,” Country Garden Services added.

S&P and Moody’s slapped “default” credit ratings on Fantasia and said the non-payment of principal would likely also put the company in default on its remaining bonds, the report said.

“The downgrade follows Fantasia’s announcement… that it had missed payment on its $205.7 million bond due on the same day, and reflects our expectation of weak recovery prospects for Fantasia’s bondholders after its default,” said Celine Yang, a senior analyst at Moody’s.

The news revived fears that debt woes are deepening in China’s overextended property sector, which accounted for 29 per cent of outstanding loans issued by Chinese banks in yuan in the second quarter of 2021. The sector is vital to China’s economy – real estate and related industries account for around 30 per cent of GDP, the report said.

“The [Chinese] property sector is worrisome,” wrote Larry Hu and Xinyu Ji, China economists for Macquarie Group, in a research note on Tuesday.

Fantasia’s default shows that Evergrande’s troubles “could dampen the sentiment for homebuyers, developers and banks, causing more developers to run into a liquidity crunch,” they said, the report added.

The outlook for the Chinese property market is not encouraging. Property sales in the top 30 Chinese cities plunged 31 per cent in September from a year ago, according to Macquarie’s estimates.

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