Evergrande fails to pay 3rd round of bond payments, spreads fear of more defaults

Beleaguered developer China Evergrande Group on Tuesday (October 12) missed its semi-annual payments on its April 2022, April 2023 and April 2024 notes, giving priority to onshore creditors over dollar debt obligations.

It is quite evident that China’s second largest developer firm (by sales) is now battling more than $300 billion in liabilities.

The real estate giant has missed its third round of bond payments in three weeks, thus raising fears that other property developers may follow suit as a wall of debt payment obligations come due in the near-term, reported Reuters. Refinitiv data claims that about $92.3 billion bonds issued by Chinese developers will be due in the next year.

Missed bond payments, some of which are to the tune of $148 million, puts investors at risk of large losses at the end of 30-day grace periods.

Brokerage firm CGS-CIMB foresees more defaults in future if the liquidity problem does not improve, saying that refinancing remains major concern for developers with weaker credit rating.

Reuters reported that trading of high-yield bonds remained soft on Tuesday following a rout in the previous session on fears about fast-spreading contagion in the $5 trillion sector, which accounts for a quarter of the Chinese economy and often is a major factor in policymaking.

The results were evident on the Shanghai Stock Exchange where top five losers in exchange-traded were all issued by property firms.

Also read: Explained: China’s Evergrande crisis and should India worry

While the world seems fixated with debt payments of China Evergrande Group and other Chinese real estate firms, markets clearly indicate that the fear of defaults and a slowing economy are real and spreading faster than expected.

“The market is trading more rationally now, according to different quality and rating of the companies, rather than selling off on the whole sector,” Michael Wong, director at CP Securities based in Hong Kong, told Reuters.

China Evergrande Group’s mounting debt is a major test for Beijing. Analysts fear Evergrande’s debt crisis could turn out to be as bad as Lehman Brothers was for the US. Real estate accounts for almost 30% of Chinese GDP.

For records, Evergrande is one of China’s largest real estate developers. The company is part of the Global 500 — meaning that it’s also one of the world’s biggest businesses by revenue.

Headquartered in southern Chinese city of Shenzhen, Evergrande employs about 2 lakh people and indirectly helps sustain more than 3.8 million jobs each year.