Bloomberg - - Intensifying concern over the impact of the China Evergrande Group's default is ripping through the nation s financial markets.
Developers lead declines in the Hang Seng China Enterprises IndexChina Enterprises Index, with Sunac China Holdings Ltd. losing 11% and Country Garden Holdings Co. - the nation s largest developer by sales - losing 8% In one week alone the two stocks have fallen more than 20%. In Shanghai, bank stocks are suffering their fastest selloff in seven weeks. China s junk dollar bonds fell as much as 3 cents in the USD on Thursday, according to credit traders. Yields at 18-month high will make it more difficult for issuers to refinance their debt.
It s not just the Asian equities sector - overall sentiment is quite fragile, said Elizabeth Kwik of Aberdeen Standard Investments real estate investment manager on Bloomberg Television.
The outlook for Evergrande is deteriorating every day. On Thursday, Evergrande's onshore investment unit haltted trading in all bonds after a risky rating cut put it among the country s highest yielding issuers. S&P Global Ratings also downgraded the developer, saying its liquidity and financing access is severely shrinking. On Wednesday, Chinese authorities told major lenders that the firm will not be able to meet interest payments on loans due Sept. 20, according to people familiar with the matter. That came after the firm hired advisers for what could be one of the largest ever debt restructurings in the United States.
The visible signs of stress in the banking system are less noticeable. Interbank lending rates remain near the average, showing sufficient liquidity in money markets. But some banks in China appear to be hoarding the yuan at the highest cost in almost four years, a sign that they may be preparing for what a Mizuho Financial Group Inc. strategist called a liquidity squeeze in crisis mode? Bank loans and other borrowings from firms including trusts accounted for about 81% of Evergrande s 335.5 billion $5.2 billion of interest-bearing debt due in 2021. Top lenders include China Minsheng Banking Corp. Agricultural Bank of China Ltd. and Industrial Commercial Bank of China Ltd. In a statement late Monday, Evergrande said that rumors of it going bankrupt were untrue.
The next week will be a test of love for the company. The firm is scheduled to make interest payments due Sept. 23 of up to $83.5 million for a $1 note and 232 million with local notes, Bloomberg data show.
Softness in the housing market - which comprises about 28% of China economy - is becoming more evident. Data Wednesday showed home sales by value plunged 20% from a year earlier in August, the biggest loss since the onset of coronavirus early last year. Relying on a question on the potential impact of Evergrande on the economy, National Bureau of Statistics spokesman Fu Linghui said some large property enterprises are running into difficulties and the fallout remains to be seen. Economists have warned that China has squeezing its real estate market too far in its quest to avoid bubbles.
Macquarie Group Ltd. s current priorities of promoting common prosperity and deterring excessive risk-taking mean there is unlikely to be any reduction in tariffs this year, according to the Chinese government. The property sector will be a main growth headwind for next year, although policy makers may reduce restrictions to defend 5% GDP expansion, Macquarie analysts wrote in a note on Wednesday.
The Hang Seng China gauge is down 2.1% at the midday break. Evergrande fell as much as 10%. Shares of Guangzhou R&F Properties Co. another junk-rated developer, were on track for the worst loss since 2009 on Thursday. The Shanghai property stock index slid 1.8%.