Evergrande shares, bonds tumble further after S&P says default likely

The halted under-construction Evergrande Cultural Tourism City. Evergrande's shares dropped as much as 7 per cent after market closing on Sept 20, 2021. PHOTO: AFP

HONG KONG (BLOOMBERG) - China Evergrande Group slid deeper in stock and credit markets on Tuesday (Sept 21), fuelling concerns about broader contagion after S&P Global Ratings said the developer is on the brink of default.

The distressed developer's shares in Hong Kong dropped as much as 7 per cent after closing on Monday - the lowest in about a decade. Its 8.25 per cent US dollar bond due 2022 fell 0.3 cent to 24.9 US cents, leaving it down some 75 per cent since late May, according to prices compiled by Bloomberg. The junk-rated company is the biggest issuer of high-yield notes in Asia.

"We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy," according to an S&P report dated Sept 20. "Evergrande failing alone would unlikely result in such a scenario."

Still, troubles could further hit investor confidence in China's property sector and junk-rated credit markets more broadly, the credit assessor said.

The situation has fuelled a global sell-off. In Asia on Tuesday, even high-grade dollar bonds slumped, leaving spreads set for the worst two-day expansion since April. A drop in stocks also continued, though pockets of the market, including property shares in Hong Kong, bounced after plunging on Monday.

Evergrande chairman Hui Ka Yan told staff that he firmly believes the company will step out of the darkest moment soon, Securities Times reported, citing a company letter. The developer will accelerate full-on resumption of construction to ensure the handing over of buildings, it said. An Evergrande spokesman confirmed the authenticity of the letter.

Investors are weighing policy tightening in China that has hit the property sector in the past year. Debate has spread about how much the government may help as markets reel, after it took months for plans to emerge for China Huarong Asset Management, one of the country's major managers of distressed assets.

Evergrande's saga is coming to a head at a time when liquidity is low amid public holidays in China and other countries in Asia. The Chinese authorities previously told major lenders not to expect repayment of interest on bank loans due this week. Interest also comes due Thursday on two of the developer's bonds.

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