Monday, January 24

Fed Warns Troubles Are Spreading As Deadline Approaches: Evergrande Update

The Federal Reserve has warned that fragility in China’s commercial real estate sector could spread to the US if it deteriorates dramatically, as investors’ attention turns to the upcoming China Evergrande Group bond repayment terms. .

The Fed’s stability report, which aims to highlight risks that could undermine the financial system, said that “tensions in China could put pressure on global financial markets through deteriorating risk sentiment, pose risks to growth economic global and affect the United States. ”

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Read: Evergrande Auto Unit Sells Protean to Electric Vehicle Maker Bedeo

China’s higher-quality dollar bonds are suffering their worst sell-off in about seven months as real estate woes spread to the broader credit market. The high-yield market had fallen 12 of the last 13 business days through Monday, according to a Bloomberg index, putting returns at 23.5%. Even state-owned companies are feeling the effects of mounting defeat.

The 30-day grace periods on three Evergrande coupon payments totaling $ 148.1 million will end on Wednesday, according to data compiled by Bloomberg. While the developer has paid other coupons past due at the end of the grace period, its dollar notes remain at distress levels. Creditors are preparing for an eventual debt restructuring that could be among the largest in China.

Meanwhile, holders of dollar bills sold by Evergrande unit Scenery Journey had not yet received payment for the coupons that were officially due on Saturday. The unit had two-dollar bond coupons due November 6: $ 41.9 million with a 13% note and $ 40.6 million with a 13.75% bond.

Read: Market Focus Shifts Towards Stronger Real Estate Firms – Evergrande Update

Key developments:

  • Government-controlled Chinese developer is the latest to crash
  • China’s bond path shifts from Evergrande to other big developers
  • Fed Warns of Danger in Rising Prices of Risky Assets, Stablecoins
  • Evergrande Unit bondholders have yet to receive coupon payments
  • China’s cities bolster use of pre-sale property proceeds: report

China’s investment-grade dollar bonds fall further since April (1:49 p.m. HK)

Spreads on investment-grade notes from the country’s issuers widened between 8 and 10 basis points on Tuesday, traders said. That would be the biggest daily expansion since April, according to a Bloomberg index.

China Property Stress Triggers Fed Warning As Bond Losses Spread (12:51 p.m. HK)

Now that the fall in bonds has spread throughout China’s real estate sector, concerns are growing about the potential risk to the global financial system.

The Fed made that link explicit in a report on Monday, warning that what happens in China’s real estate industry could affect financial markets and threaten global economic growth. At the heart of the bond market sell-off is concern that developers may have far more debt than is revealed on their balance sheets.

Kaisa Dollar Bonds Decline Following Investor Meeting Cancellation (12:20 PM HK)

Kaisa’s dollar bonds fell further Tuesday after the developer said it would cancel a meeting with investor representatives. That’s in line with declines in China’s high-yield market.

China Dollar Bonds Rise As Real Estate Notes Fall (10:11 a.m. HK)

China’s high-quality and junk-rated dollar bonds continued to struggle Tuesday morning as developer debt extended recent weakness. Junk bills fell as much as 2 cents on the dollar, according to credit traders, en route to the biggest drop in four weeks.

China’s euro bond yield seen to thrive even with the housing crisis (9:42 am HK)

The growing real estate crisis in China is not expected to be a deterrent to investors vying for a share of the sovereign’s rare euro debt.

China is slated to open books on 4 billion euros ($ 4.64 billion) of new bonds in three tranches on Wednesday, according to a statement. The sale will be the first in Europe’s common currency since last November and comes weeks after Evergrande narrowly avoided default.

HKMA Asks Banks To Report Property Exposure In China, Says HKEJ (8:04 AM HK)

The Hong Kong Monetary Authority recently told banks that it would require them to disclose more details about their exposure to Chinese real estate, the Hong Kong Economic Journal reported, citing unidentified people.

China’s Cities Reinforce Use of Pre-Sale Property Revenues (7:53 a.m. HK)

A growing number of cities in China have tightened monitoring over the use of apartment pre-sale proceeds, according to a report by China Business News on Tuesday.

Major cities, including Beijing, Tianjin, Shijiazhuang, as well as smaller municipalities such as Suzhou and Nantong in eastern Jiangsu province, and Luohe in central Henan province, have issued rules that tighten revenue monitoring.

Goldman Recovers China’s Real Estate Debt As Others Pull Back (6 a.m. HK)

Goldman Sachs Asset Management is buying Chinese real estate debt, even as other investors walk away.

The firm has been adding a “modest amount of risk” through high-yield bonds issued by Chinese real estate developers and denominated in US dollars, said Angus Bell, a member of Goldman’s portfolio management team. The market is overestimating the risk of contagion, Bell said in an interview Friday.

Kaisa to Cancel Investor Representative Meeting on Wednesday (11:18 PM HK)

Kaisa will cancel a meeting with investor representatives on Wednesday, citing public safety concerns due to the pandemic, according to a statement posted on his WeChat page Monday night. The company said its “total assets are worth more than its liabilities,” adding that it has enough assets to trade in wealth management products.

“Kaisa’s cancellation of her meeting with investors in wealth management products may indicate that she needs more time to find funds to repay them,” said Daniel Fan, credit analyst at Bloomberg Intelligence.

Dollar bonds Coupon expiration date Grace period ends Amount

(A million dollars)

EVERRE 9.5% due in 2022 October 11th November 10 68.88
EVERRE 10% maturing in 2023 October 11th November 10 42.5
EVERRE 10.5% due in 2024 October 11th November 10 36.75
TIANHL 13% due 2022 November 6th 6th of December 41.93
TIANHL 13.75% due in 2023 November 6th 6th of December 40.56
EVERRE 7.5% due in 2023 December 28th January 27th 50.43
EVERRE 8.75% due in 2025 December 28th January 27th 204.77

© 2021 Bloomberg

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