Evergrande troubles punish China as contagion concern spreads
Hong Kong, Sept 20, Growing fears of China Evergrande defaulting rattled global markets on Monday as investors worried about the potential impact of the larger economy dumped Chinese property stocks and sought refuge in safe-haven assets.
Despite the failure of the Shares in Evergrande (3333.HK), which had been scrambling to raise money for its many lenders, suppliers and investors, closed down 10.2% on Monday at HK$2.28.
Regulators warned that its $305 billion of liabilities could spark broader risks to China's financial system if its debts are not stabilized.
The global market shares fell short and the dollar went down as investors worried about the spillover risk to the global economy. The US stocks were sharply lower, with the S&P 500 (.SPX) down nearly 2%. read more.
Evergrande is due to pay 83,5 million in interest on Thursday on its March 2022 bond. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.
If Evergrande fails to settle the interest within 30 days of the scheduled payment date, both bonds would fail.
In any default scenario, Evergrande, teetering between messy meltdown, managed collapse or the unlikely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect low recovery rates
Evergrande's troubles also pressured the general property industry, with the Hong Kong-listed shares of small-sized Chinese developer Sinic Holdings (2103.HK) down 87%, bringing $1.5 billion off its market
Evergrande executives are working to improve its business prospects, including by starting to repay investment funds with real estate. les more Evergroe's executives' efforts to save the market, and to recover its prospects and then
"The stock of the Company will continue to fall, because there isn't a solution that seems to help the company to ease its liquidity stress, and there are still so many uncertainties about what the firm will do in case of
Lin said Evergrande's shares could fall to less than HK$1 if it is forced to sell most of its assets in a restructuring.
"As of now, there is no systemic risk for the global economy from Evergrande, but there's no need for any systemically affected markets," said David Bahnsen, chief investment officer of The 'The
However, there was some confidence that the situation would be contained.
"Beijing has demonstrated in recent years that it is fully able and willing to step in to combat widespread contagion when major financial/corporate institutions fail," said Alvin Tan, FX Strategist at RBC Capital
DOLLAR BONDS DELLAR BANKS.
Despite growing concerns about the future of what was once the country's top-selling property developer, analysts have not yet looked at the comparison of the 2008 collapse of Lehman Brothers, which has made up a huge amount of risk
The dollar bonds will likely be restructured. However, the majority of the debt is in global mutual funds, ETFs and some Chinese companies and not banks or other important financial institutions, said Ryan Detrick.
He said the book "Lehman Brothers" was used nearly all other financial institutions's books." "Secondly, we think the odds do favor the Chinese communist government with a reluctance to join if there's eu default."
The government is largely skeptical of whether the government can afford a direct bailout.
The People's Bank of China, the Central Bank and the National Bank Watchdog summoned Evergrande executives in August in a rare move and warned that it would need to reduce its debt risks and prioritise stability.
The trading of the company's bonds underscores how dramatically the investor expectations of its prospects have deteriorated this year.
On Monday, the 8,25% March 2022 dollar bond reached 29.156 cents, yielding over 500%, compared to 13.7% at the start of year. The 9,5 % bond issued by March 2024 was at 26,4 cents, yielding over 80%, compared to 14,6 p.m. at the start of 2021.
PERFORMED ACCORDS FOR PROPRITY PUNISED.
Goldman Sachs said last week that Evergrande has dollar bonds issued both by the parent and a special purpose vehicle, and that recovery in tangible resistance could be shortened.
Investors, meanwhile, are increasingly worried about the contagion risk, mostly in the debt-laden Chinese property industry, which, along with the yuan, came under pressure on Monday.
The yuan fell to a three-week low of 6.4831 per dollar in offshore trade.
Sinic, whose selling pressure went up, has nearly $700 million in offshore debts maturing before June 2022, including $246 million due in a month -- . 'The bond slipped to around
Sinic has a junk rating from Fitch, which downgraded its outlook to negative on Friday.
Other property stocks such as Sunac (1918.HK), China's No.4 property developer, slipped 10.5%, while Greentown China (3900.HHK) dropped around 6.7%.
Guangzhou R&F Properties Co (2777.HK) said on Monday that it raised $2.5 billion by borrowing major shareholders and selling a subsidiary. This highlighted the scramble for cash as distress signals spread in the sector L1N2QM0XG
$1 = $7 77863 Hong Kong dollars)