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China Officials Play Down Risk of Evergrande Spilling Over

The property giant is desperately looking to raise funds to pay its many lenders and suppliers, as it teeters on the edge of a formal default on one of its international bonds


China Evergrande Centre
The China Evergrande Centre in Hong Kong. Photo: Reuters

 

Leading Chinese officials have again moved to calm nervous investors and homeowners that the crisis in the country’s property sector sparked by China Evergrande’s struggles is “controllable.”

Worries that a cash crunch at the real estate giant, the world’s most indebted developer, could have a major affect on global markets have seen high-yield bonds issued by other Chinese property developers impacted.

In comments reported by the 21st Century Business Herald, Vice Premier Liu He said on Wednesday that overall risks in the property market are manageable.

 

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Meanwhile, Pan Gongsheng, head of China’s foreign exchange regulator, said excessive tightening by Chinese financial institutions and markets on the property sector is being gradually corrected, and financing activities are normalising, financial magazine Yicai reported.

Those comments followed a speech by People’s Bank of China (PBOC) Governor Yi Gang, who said on Sunday that China’s economy is “doing well” but faces challenges such as default risks for certain firms due to “mismanagement.”

China will fully respect and protect the legal rights of Evergrande Group’s creditors and asset owners in line with repayment priorities laid out by the law, Yi said, according to a transcript released by the PBOC on Wednesday.

Yi also said regulators should do their best to avoid risks from Evergrande spilling over into other property developers and the broader financial sector. 

Evergrande is scrambling to raise funds to pay its many lenders and suppliers, amid expectations it is about to formally default on one of its international bonds. On Tuesday the company shelved plans to sell a majority stake in its property services unit, sources said.

An Evergrande bond due on March 23, 2022 will officially be in default if the company does not make good after a 30-day grace period – which ends this Saturday – for a missed coupon payment that had been due on September 23.

 

Offshore Bond Market

Official reassurances and coupon payments from other major developers have helped to support the wider offshore bond market in recent days.

An index of China high-yield debt, which is dominated by property developer issuers, saw spreads continue to tighten on Tuesday evening, US time, after hitting record levels last week.

But a continued slump in bonds issued by Kaisa Group Holdings, which was hit by a ratings cut on Tuesday, indicated that investors’ concerns continue to linger. Kaisa’s 11.5% January 2023 bond led the losses, falling nearly 14% to around 37 cents.

“I feel the market is still seeking the bottom and is sensitive,” said a portfolio manager who asked not to be identified as he is unauthorised to speak with media.

Tens of thousands of Chinese developers had borrowed heavily to build homes during a surge in the property market between 2016 and 2018. But they are now facing a liquidity crunch amid tighter regulations on fresh borrowing, leaving many projects incomplete.

New construction starts slumped for a sixth straight month in September and home prices are falling in parts of the country.

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

China’s New Home Prices Stall For First Time Since Covid-19

China Evergrande Pays Locals As Offshore Default Looms

 

 

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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