Growing default worries sap investor sentiment

HONG KONG: Growing worries about defaults at Chinese property developers sapped investor sentiment yesterday, amid fresh credit rating downgrades and uncertainty about the fate of China Evergrande Group as it scrambles to raise cash by selling assets.

Evergrande is facing one of the country’s largest-ever debt restructurings as it wrestles with more than $300 billion of debt. The company last month missed making coupon payments on two dollar bond tranches.

The possible collapse of one of China’s biggest borrowers has triggered worries about contagion risks to the property sector in the world’s secondlargest economy, as its debt-laden peers are hit with rating downgrades on looming defaults.

Evergrande requested a halt in the trading of its shares on Monday pending an announcement about a major deal. Evergrande Property Services Group also requested a halt referring to “a possible general offer” for company shares.

China’s state-backed Global Times said Hopson Development Holdings Limited was the buyer of a 51% stake in the property business for more than HK$40 billion (US$5.1 billion), citing unspecified other media reports.

Evergrande declined to comment ahead of an official announcement, as trading in the company’s shares remained suspended yesterday.

While investors awaited confirmation of the deal, Chinese developer Sinic Holdings (Group) Company Limited became the latest to suffer a ratings downgrade as stocks in the sector came under pressure.

Fitch Ratings yesterday cut Sinic’s long-term issuer default rating to ‘C’ from ‘CCC’, after the company announced that certain subsidiaries have missed interest payments on onshore financing arrangements.

S&P Global Ratings also lowered its rating on the company, saying it had run into “severe liquidity problem and its debt-servicing ability has almost been depleted”.

It said the company was likely to default on notes, totalling $246 million, due on Oct 18.

Sinic declined to comment on the ratings downgrades.

“Since the Evergrande crisis, investors have become more worried and focused about Chinese developer’s repayment ability,” Thomas Kwok, head of equity business at Hong Kong brokerage CHIEF Securities.

“The liquidity issues have increased as many developers were not able to issue fresh debt to refinance, and as their ability to raise cash from selling properties dropped because of new regulations,’’ he said.

“This will be a vicious cycle for the developers that are not strong enough, because there is not enough liquidity in the market for everyone.”

The $5 billion Evergrande is likely to get from the reported unit stake sale would theoretically cover its near-term offshore bond payments. It has $500 million in bond coupons due by yearend, followed by a $2-billion dollar bond maturity in March.

Analysts have said the potential Evergrande deal signals the company is still working to meet its obligations. But any fire-sale of its assets would further amplify concerns about the rest of China’s property sector and the broader economy.

Chinese homebuilder Fantasia Holdings Group Company Limited’s dollardenominated bonds lost nearly half their market value in a massive Monday sell-off, after it said it had failed to make a $206 million international market debt payment on time.

In a statement, the property developer said it would assess the potential impact of the non-payment on the group’s financial conditions.