Beijing The crisis surrounding the hard-hit Chinese real estate group Evergrande is not subsiding. The country’s second-largest housing company, which has defaulted, allowed the deadline for further interest payments on offshore bonds traded in US dollars to pass, as reported by the Bloomberg news agency on Tuesday, citing some bondholders.
Evergrande had already failed to make interest payments on bonds traded in US dollars in September. It is uncertain whether this will happen within the grace period of 30 days.
Evergrande is not the only corporation groaning under high debt, with liabilities equivalent to more than 300 billion dollars, but it is the largest Chinese real estate company threatened with collapse. Sinic Holdings from Shanghai has now announced that it will probably not be able to repay a bond due on October 18 with a value of $ 250 million. This could also lead to payment delays on other bonds issued by the company.
According to Bloomberg, the company has $ 694 million worth of dollar bonds outstanding. The company missed payments on its domestic bonds in September, causing the share price to plummet 87 percent.
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Sinic’s troubles are another sign of hidden risks for investors in the troubled Chinese real estate bond market as uncertainty about the future of Asia’s largest junk bond issuer, China Evergrande Group, weighs on the sector. Since the surprise insolvency of real estate company Fantasia last week, the sell-off has accelerated and raised concerns about distressed competitors.
Important source of funding for China’s real estate developer has dried up
Yields on Chinese dollar junk bonds, the majority of which were issued by real estate companies, rose to 17.5 percent, according to Bloomberg – the highest level in about a decade. For the industry, this means that the important source of funding through bond issues has practically dried up.
In the meantime, real estate companies are trying to avoid a total default on their pending obligations. Beijing-based Modern Land, which has $ 1.35 billion in dollar bonds outstanding, has asked holders for a three-month extension to repay a bond due on October 25.
Evergrande boss Xu Jiayin recently also focused on servicing bonds in the Chinese home market. Many small savers there lent money to the group over the years. If this cannot be repaid, the country’s authorities fear unrest. Jiayin recently emphasized that the top priority is to pay off clients of asset management products. Everything must also be done to resume the construction of unfinished apartments and to protect the interests of the owners.
Real estate company missed payments now account for 36 percent of the record-breaking 175 billion yuan ($ 27.1 billion) in onshore corporate bonds defaulted this year, according to Bloomberg data.
Meanwhile, the problem at Fantasia worsened: Two members of the board of directors have left the Chinese construction company – which means a violation of the requirements of the Hong Kong stock exchange.
Construction company Fantasia loses two directors, violating stock exchange rules
A few days after a dollar bond defaulted, Fantasia announced that two independent, non-executive directors, Ho Man and Wong Pui Sze, have left the company with immediate effect. Ho apparently justified his withdrawal with “that he had not been informed in a timely and comprehensive manner about certain important company matters,” it said.
Two Fantasia bonds were suspended from trading on Friday after parent company Fantasia Holdings missed the $ 206 million repayment deadline on October 4th.
Due to the two departures, the board of Fantasia consists of only one member. According to the stock exchange admission regulations, however, there must be at least three, of which at least one must have appropriate qualifications or specialist knowledge in the field of accounting or financial management, as the company itself announced. Fantasia will endeavor to fill the vacancies “as soon as possible”. In view of the crisis in the industry, however, this is unlikely to be easy.
The shares of Fantasia and one of its subsidiaries have been suspended from trading in Hong Kong since the end of September. “The CEO’s recent departure will make it difficult for Fantasia to resume trading,” said Mike Leung, an investment manager at Wocom Securities.
Fantasia announced on Friday that it had hired Houlihan Lokey as its financial advisor to review its capital structure, assess liquidity and explore all feasible ways to overcome the liquidity crisis.
More: “Financial debauchery will be punished” – The consequences of China’s new debt policy