Advertisement
Macroscope | Markets’ calm over Evergrande debt crisis could be a double-edged sword
- Investors seem to expect Beijing to ease its curbs on the property sector to head off contagion and damage to China’s economic recovery
- With most of China’s debt held at home and few signs of spreading contagion, though, Beijing has a strong incentive to keep turning the screw
Reading Time:3 minutes
Why you can trust SCMP
5
For a sign of the dangerous spillover effects of the liquidity crisis at China Evergrande Group, look no further than the average yield on Chinese US dollar-denominated high-yield bonds in an ICE Bank of America index of Asian junk-rated debt.
Having stood at 13 per cent at the start of last month, it has since surged to 22 per cent amid the acute financial stress ripping through China’s residential property market.
Mounting uncertainty over the fate of Evergrande – which has missed several debt interest payments since the end of September – and Beijing’s willingness to persist with its high-stakes deleveraging campaign in the property sector has put other vulnerable developers under severe strain.
Advertisement
Last week’s surprise default of Fantasia Holdings Group, a smaller housebuilder, and a warning on Tuesday by Sinic Holdings Group, another Chinese developer, that it does not expect to repay a bond due on October 18 have fanned fears of a wave of defaults across the industry in the coming months.
According to Bloomberg data, real estate companies’ missed payments account for 36 per cent of the record US$27.2 billion in onshore corporate bond defaults this year.
Advertisement
The scope for more distress is significant, given that almost 70 per cent of US dollar-denominated Chinese real estate bonds are speculative grade, with the sector accounting for more than half of China’s external high-yield corporate debt, according to JPMorgan data.
Advertisement
Select Voice
Select Speed
1.00x