Another bond deadline looms for Evergrande, other developers as home sales slump

China Evergrande Group's shares fell as much as 8.4 per cent Monday in Shenzhen, hitting a seven-year low.
China Evergrande Group's shares fell as much as 8.4 per cent Monday in Shenzhen, hitting a seven-year low.PHOTO: REUTERS

TOKYO (BLOOMBERG) - China Evergrande Group faces another key bond payment deadline on Saturday (Nov 6), part of more than US$2 billion (S$2.7 billion) coming due at China's stressed property developers this month as an industry slump persists.

Major builders saw home sales tumble 32 per cent last month from a year earlier, according to property research firm China Real Estate Information Corp (CRIC). That may exacerbate a cash crunch as the government seeks to curtail leverage in the property sector and bond refinancing becomes increasingly difficult.

Evergrande unit Scenery Journey has US$82.5 million in coupons on two dollar bonds coming due on Saturday. Last week, Evergrande's bondholders received an overdue interest payment shortly before the expiry of a grace period, buying more time for the debt-stricken company to raise cash from asset sales.

A surge in Chinese junk dollar bond yields last month has made it all but impossible for stressed developers to roll over their maturing debt. At least four builders defaulted last month, as the country's credit market undergoes its biggest shakeout in years.

Still, the banking system has so far managed to shrug off the property industry slump. China's biggest state-run banks extended their earnings recovery in the third quarter, fueled by rising credit demand and improving asset quality, results showed last week.

Developer Yango Group is seeking to extend three of its dollar notes as "existing internal resources may be insufficient", according to a filing. The Shanghai-based builder, the 18th biggest in the nation by contracted sales, intends for the move to improve liquidity and avoid default, it said.

The company's shares fell as much as 8.4 per cent Monday in Shenzhen, hitting a seven-year low. Chinese dollar high-yield bonds are falling for an eighth-straight day on Monday after tumbling nearly nine cents on the dollar last month, closing out the worst two-month slide in a decade.

New-home sales by area at the nation's top 100 developers fell 32 per cent last month from a year earlier, a report by CRIC showed on Monday. Sales rose 1.4 per cent from a month earlier.

The outlook for the property market does not look promising and sales may continue to slow towards the end of the year, according to the CRIC report. Redsun Properties Group has redeemed a dollar bond that matured on Saturday, according to a stock exchange filing.

The note had US$83 million outstanding following some recent repurchases, Redsun had previously said. Redsun has an additional US$1.9 billion of dollar bonds outstanding, the next one maturing in April, according to Bloomberg-compiled data.

Chinese financial markets were mostly unfazed after Beijing decided to expand property tax trials by imposing levies on some homeowners. While details remain elusive, analyst consensus points to limited immediate market impact beyond real estate sectors.

The trials are expected to last five years, paving the way for an eventual nationwide roll-out. While the taxes are "untimely" and may exacerbate negative sentiment toward developer stocks, there is little incremental drag on sectors that are already facing headwinds, according to Mr Cheng Wee Tan, a Singapore-based senior equity analyst at Morningstar.

China's indebted developers are struggling to meet Beijing's tighter financing rules. Two-thirds of the top 30 Chinese property firms by sales ranked by CRIC have breached at least one of the metrics known as the "three red lines", Bloomberg-compiled data showed as of Oct 29.

China's biggest state-run banks extended their earnings recovery in the third quarter, fueled by rising credit demand and improving asset quality. Industrial & Commercial Bank of China on Friday reported net income rose by 11 per cent. Bank of China, Agricultural Bank of China and China Construction Bank delivered gains of 13 per cent to 16 per cent.

Still, risks are emerging as turmoil mounts in the nation's sprawling real estate market. Chinese banks had more than 51.4 trillion yuan (US$8 trillion) of outstanding loans to the real estate sector as at September, an increase of 7.6 per cent from a year earlier. The exposure was more than any other industry, and accounted for about 27 per cent of the nation's total lending, according to official data.

Overall, about 41 per cent of China's banking system assets were either directly or indirectly associated with the property sector by the end of last year, and any slide in property prices may lead to knock-on effects on asset quality due to higher default rates in related sectors and lower collateral value, according to Citigroup.