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China Evergrande's office tower in Hong Kong:
A collapse of the group, which has grown rapidly on credit, could send shock waves into the Chinese banking system
Photo: Bobby Yip / REUTERS
The stock exchanges have the debt-laden Chinese real estate group China Evergrande in their crosshairs. After a media report about planned payment stops on loans to two creditor banks, investors feared a collapse of the group and first threw stocks and bonds from the custody accounts on Thursday. According to an insider, however, one of its main creditors granted an extension of the payment period, which helped the company's bonds back on their feet.
A person familiar with the situation told Reuters that Evergrande had been granted an extension of a trust loan interest payment to CITIC Trust. The group asked for it, citing the lack of liquidity. The payment, which was due at the end of August, is said to have been delayed by at least three months. Evergrande did not want to comment on this.
On the bond markets, the Group's dollar-denominated bond with a term until June 2025 then partially recovered from its losses.
"This could be positive news as it could draw a line," said Siddharth Dahiya, responsible for corporate bonds in emerging markets at wealth manager Abrdn (formerly Standard Life Aberdeen).
"But we don't know, there is very little clarity. However, the initial reaction in the markets is positive."
Growth on credit could be fatal for the group
A report by the financial news service REDD had previously pissed off investors, in which there was talk of planned suspension of interest payments to two creditor banks. As of Wednesday, all payments for its asset management products should also be suspended, the report said. As a result, the price of a bond issued by the company until January 2023 fell by 30 percent. Because of the strong turbulence, the Chinese stock exchange temporarily halted trading in bonds. The shares plummeted by up to 10.5 percent and were listed as low as they have been in six years. From the trade they went 4.3 percent weaker. They have lost around 75 percent since the beginning of the year
In June, Evergrande defaulted on bond interest payments, which accelerated the slump on the stock markets.
In the past few days, the lowering of the credit rating by the rating agencies Moody's, Fitch and China Chengxin International (CCXI) caused a sell-off.
Shock waves for China's banking system
Investors fear shock waves for the Chinese banking system if Evergrande collapses. Overall, the real estate company is said to be sitting on a mountain of debt equivalent to the equivalent of more than 300 billion dollars - which roughly corresponds to the economic output of Finland. About a week ago, the country's second largest real estate developer himself warned of liquidity and default risks if he should not be able to resume construction, sell holdings and renew loans.
In the past few years there has been a gold-rush atmosphere in the sector in the face of skyrocketing real estate prices in China.
Evergrande grew rapidly, with the help of loan-financed land purchases and home sales at lower margins to drive sales up faster.
The man at the top and founder of the group, Hui Ka Yan, was named the richest man in Asia by Forbes magazine in 2017 with a net worth of around $ 45 billion.
However, the government took ever tougher action in the fight against an impending speculative bubble and, among other things, recently imposed rent brakes in order to create affordable housing in the megacities.
la / reuters
