China’s Economic Wobbles Cast Long Shadow for Asia

China’s gross domestic product faltered in the third quarter, data showed this week, with growth hitting its weakest in a year, hurt by power shortages, supply chain snags and a property market crisis.

For China’s trading partners, the slippage presents new risks to what is shaping up to be a bumpy global recovery from the pandemic slump.

“Yes, growth elsewhere, namely the U.S. and Europe, appears robust,” wrote Frederic Neumann, co-head of Asian economics research at HSBC. “But it is China that’s been the main engine for growth across the region – and as it sputters, Asian economies will lose much of their torque.”

HSBC analysis showed Asia-Pacific economies from South Korea to New Zealand far more correlated to changes in China’s growth than they were to changes in U.S. or European GDP.

For every percentage point China added to its growth, trade powerhouse South Korea reported about 0.7 of point of additional growth, the bank’s economists said.

South Korea was by far the most sensitive to changes in Chinese growth, according the analysis, followed by exporting nations Thailand and Taiwan.

An anticipated Chinese slowdown has already prompted Citi analysts to downgrade growth projections for economies in the region, including South Korea, Taiwan, Malaysia, Singapore and Vietnam.

A Reuters Corporate Survey last week showed a majority of Japanese firms were concerned that a slowdown in China, Japan’s largest trading partner, would affect their business.

The slowdown is being felt across most of China’s economy, from the retail to factory sectors, which posted its weakest output growth since the start of the pandemic.

China’s auto sales slumped 19.6% in September from a year earlier, industry data showed last week, falling for a fifth consecutive month amid a prolonged global shortage of semiconductors and the power crunch.

Similarly, sharp declines in new construction starts in China’s property market, due to a regulatory crackdown, loom as risks for exporters of raw materials, such as Australia.

Iron ore prices have nearly halved since hitting a record in mid-May, with demand hurt by China’s steel output curbs and the property slowdown.

Last week, mining giant Rio Tinto downgraded its 2021 iron ore shipments forecast, mostly due to tight labour market conditions in Australia, but it also warned of headwinds from China’s regulatory crackdown.

‘STAGFLATION’

Despite the risks from China, analysts say Asia will be able to prevent a precipitous collapse in domestic demand, as improved vaccination rates allow countries in the region to shake off COVID-19 restrictions.

Similarly, Chinese demand for some goods, such as fuel and food, remains firm. That means for now, central banks are unlikely to swerve from their general shift away from crisis era monetary settings.

Singapore last week tightened its monetary policy.

Beyond the broader demand shock, complications for economies in Asia and elsewhere could come from worsening supply-side problems in China, such as the power crunch.

So far, China’s manufacturers and exporters have yet to significantly pass on higher costs caused by supply shortages of everything from coal to semiconductors.

But analysts warn the situation around inflation is fluid.

While weaker demand could relieve pressure on prices, supply chain bottlenecks, if unresolved, could create a “stagflation” nightmare in which surging prices are accompanied by stagnant growth.

“I think it could potentially be a bit of a double whammy now. Because China is one of the economic engines for the region, any slowdown can affect the demand for regional goods and services,” said Selena Ling, head of treasury research and strategy at OCBC Bank.

“Secondly, the ongoing power crunch, in all likelihood, policymakers will prioritise home (use) for winter demand over industrial activity. So that could exacerbate global supply chain disruptions.”

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Tetsushi Kajimoto, Kantaro Komiya and Leika Kihara in Tokyo; Orathai Sriring in Bangkok; and Tom Westbrook in Singapore; Writing by Sam Holmes; Editing by Raju Gopalakrishnan)

China Evergrande Makes Onshore Coupon Payment – Sources

Hengda Real Estate Group Co, Evergrande’s flagship unit, has remitted funds to pay an onshore bond coupon of 121.8 million yuan ($19 million), the people said.

One of the people said Evergrande, China’s No. 2 developer, needs to prioritises its limited funds towards domestic market where the stakes are much higher for the country’s financial system.

The liquidity crisis at Evergrande, which has $300 billion in debt and has missed a series in bond payments, has roiled global markets. High-yield bonds issued by Chinese property developers have been especially hammered.

An Evergrande bond due March 23, 2022 will officially be in default if the company does not make good after a 30-day grace period for a missed coupon payment that had been due on Sept. 23.

But the offshore bond market has responded positively after China central bank’s assuring comment and coupon payments of two major developers.

An index of China high-yield debt, which is dominated by property developer issuers, has seen spreads tighten from last week’s record levels to around 1,484 points on Tuesday.

Sunac China, which has a $27.14 million payment due Tuesday, has paid its bondholders, a source with direct knowledge of the matter said.

The source was not authorised to speak to media and declined to be identified. A Sunac representative declined to comment.

Kaisa Group said on Monday it has paid a coupon due Oct. 16 and it plans to transfer funds for a coupon worth $35.85 million due Oct. 22 on Thursday.

In the past few days, the People’s Bank of China has said spillover effects on the banking system from Evergrande’s debt problems were controllable and that China’s economy was “doing well”.

Bonds from Chinese developers that gained on Tuesday included Modern Land’s 2022 bonds which bounced over 8% to 40.250 cents on the dollar, while Central China Real Estate’s 2024 bonds climbed over 5% to 44.843 cents.

On Monday, smaller developer Sinic Holdings defaulted on $246 million in bonds as expected. It had warned of the default last week, saying it did not have sufficient financial resources.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Clare Jim in Hong Kong, Samuel Shen in Shanghai, Shanghai newsroom and Beijing newsroom; Editing by Edwina Gibbs and Lincoln Feast)

Evergrande Debt Woes Are Manageable, China Central Bank Official Says

Chinese authorities are urging Evergrande to step up asset disposals and the resumption of projects, Zou Lan, head of financial markets at the People’s Bank of China (PBOC), told a briefing, adding that individual financial institutions did not have highly concentrated exposure to Evergrande.

“In recent years, this company did not operate and manage itself well. It failed to conduct prudent operations according to changing market conditions, and it blindly diversified and expanded its business,” Zou told the briefing in Beijing.

Chinese officials and state media have been largely silent on the crisis at Evergrande, which has missed a series of bond interest payments and has $300 billion in debt, making it the world’s most indebted developer.

Zou also said property firms that have issued bonds overseas should actively fulfil their debt repayment obligations.

Evergrande has left its offshore investors in the dark about repayment plans after already missing three rounds of interest payments on its dollar bonds.

Zou’s comments came as sources told Reuters that Evergrande CEO Xia Haijun was holding talks in Hong Kong with investment banks and creditors over a possible restructuring and asset sales.

Xia had been in Hong Kong for more than two months, several sources told Reuters. Xia needed to communicate with foreign banks on loan extensions and repayments, one of the sources said.

Joining a list of property developers reeling from the debt crisis, China Properties Group Ltd said on Friday it had defaulted on notes worth $226 million.

Another Chinese developer, Xinyuan Real Estate Co’s, avoided a default on a maturing dollar bond on Friday, saying in a Singapore Exchange filing that bondholders had agreed to an offer to accept new bonds and cash in exchange for maturing notes.

Xinyuan said that holders of more than 90% of the company’s $229 million notes due Oct. 15 had agreed to the exchange, which would see it deliver new bonds worth $205.4 million and $19.1 million cash.

Xinyuan’s 14.5% September 2023 bond crashed nearly 30% on Friday to trade at 58.35 cents, according to data provider Duration Finance.

The agreement follows warnings from other developers that they could default on their bonds, while still others have taken steps to delay payments in the wake of Evergrande’s troubles.

Evergrande, with 1,300 real estate projects in more than 280 cities, missed a third round of interest payments on its international bonds this week.

However, in a separate statement filed to the Shenzhen Stock Exchange, Evergrande said it would pay interest coming due on Oct. 19 on a yuan-denominated bond it issued in 2020.

PBOC URGES SPEEDY ASSET SALES

At the Friday briefing, Zou said Evergrande should step up asset disposals and the resumption of project building, for which authorities will provide financing support.

Some lenders have had “misunderstandings” about the central bank’s debt control policies, causing financial strains for some developers, as some new projects were unable to get loans even after repaying existing loans, Zou said.

“This short-term extreme reaction is a normal market phenomenon,” he said.

Chinese developers face more than $500 million in coupon payments on their high-yield bonds before the end of this month. Refinitiv data show coupon payments by Kaisa Group Holdings and Fantasia Holdings are due this weekend.

“In some cities, the property prices surged too fast, causing the approval and issuance of personal mortgages to be restrained,” Zou said, referring to the first nine months of this year.

“Once housing prices stabilise, the supply and demand of mortgages in those cities will be normalized too,” he said.

FRESH SETBACKS

Still, Evergrande suffered fresh setbacks on Friday with sources telling Reuters that Chinese state-owned Yuexiu Property pulled out of a proposed $1.7 billion deal to buy the company’s Hong Kong headquarters building over worries about the developer’s dire financial situation.

Evergrande has been scrambling to divest some assets to repay creditors knocking on its doors and the collapse of the talks shows the difficulties it is facing.

Adding to its woes, Hong Kong’s audit regulator said on Friday it was investigating Evergrande’s 2020 accounts and their audit by PwC because it had concerns about the adequacy of reporting on whether it could continue operating as a going concern.

Evergrande bonds fell following the Reuters report. The company’s 8.75% June 2025 bonds slumped more than 6% to trade at a discount of more than 80% from its face value, according to data provider Duration Finance.

BOND SLUMP DEEPENS

Apart from Xinyuan, Duration Finance data showed other developers’ bonds deepening their rout. Sinic Holdings Group’s 10.5% June 2022 bond dived more than 20% to just 12.25 cents, and Ronshine China Holdings’ February 2022 bond fell more than 6% to 68.35 cents.

Moody’s downgraded Risesun Real Estate Development Co Ltd to B1/B2, with a negative outlook.

Spreads on Chinese high-yield corporate dollar bonds touched a fresh record late Thursday evening U.S. time, having nearly tripled since late May, while investment-grade spreads remained near their widest in more than two months.

Worries of contagion have also hit property developers’ shares this week. On Friday, an index tracking A-shares in the sector gave up small gains to end down 0.1%, lagging a 0.38% gain in the blue-chip index and taking losses since Tuesday to 4.5%.

China has been ramping up property market curbs since late 2020, introducing new measures to closely monitor and control developers’ debt levels.

But with economic growth cooling and new construction starts slowing, speculation has been rife over whether it will start relaxing those restrictions, as was the case during previous downturns.[ECILT/CN]

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Andrew Galbraith, Cheng Leng, Kevin Yao and Tony Munroe, additional reporting by Alun John, Karin Strohecker and Noel Randewich; Editing by Kim Coghill, Jacqueline Wong and Nick Macfie)

China Developer Shares Slide as Evergrande Concerns Simmer

Evergrande, which has more than $300 billion in liabilities and 1,300 real estate projects in over 280 cities, missed a third round of interest payments on its international bonds this week.

The world’s most indebted developer, which has been trying to sell assets to raise funds, appeared to have made small progress towards that goal when Qumei Home Furnishings Group announced in a filing on Thursday that it will buy out Evergrande group’s 40% stake in their furnishings joint venture for 72 million yuan ($11.18 million).

But some other Chinese developers have also warned they could default, and rising risks on Wednesday led credit agency S&P Global to downgrade to two of the sector’s bigger firms, Greenland Holdings – which has built some of the world’s tallest residential towers – and E-house, and warn it could cut their ratings further.

Adding to the concerns of investors who have increasingly been hoping for policy easing to stabilise a wobbly recovery in the world’s second-largest economy, data on Thursday showed China’s annual factory gate prices rising at the fastest pace on record in September due to soaring raw material costs.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said persistent inflationary pressure would limit the scope of any monetary policy easing.

“But the most important policy in the property sector is not monetary policy, but the regulation related to leverage and bank loan supply to developers (and) home buyers,” he said.

“Therefore I think the government still has the option to loosen those policies to help the property sector. The big question is whether they are willing to do so. So far their policy stance seems quite firm.”

On Thursday, a sub-index tracking shares of Chinese property developers ended the day down 3.88% while the broad CSI300 blue-chip index slipped 0.54%. Property shares have fallen nearly 20% this year, compared to a 5.7% fall for the CSI300.

China property shares would remain volatile in the near term, JPMorgan analysts said in a report.

“News on marginal easing will likely cause a short-term rebound, which, however, may not be very sustainable due to the likely ongoing concerns on the offshore bond market,” they said.

“A more sustainable rally may happen in January 2022 when banks have more front-loaded quota to extend credit to developers/mortgages.”

LIGHTNING RODS

In China’s onshore bond market, prices underscored continued volatility, with bonds of developer Shanghai Shimao listed among both the biggest gainers and biggest losers on the day by the Shanghai Stock Exchange.

“Property bonds are lightning rods,” said a director at a local brokerage. Apart from the risk of debt contagion from Evergrande, higher mortgage rates – part of official efforts to rein in surging housing prices – are hitting the industry, he said. “Fundamentally, the high turnover of real estate companies is gone.”

In international debt markets, data provider Duration Finance showed Greenland Group Holdings’ 6.75% June 2022 bond was trading down more than 3 points at 60.175 cents, and Xinyuan Real Estate’s 14.5% September 2023 bond slumped nearly 8 points to 63.9 cents.

Markets in Hong Kong were closed on Thursday for a public holiday.

Global worries over the potential for spillover of credit risk from China’s property sector into the broader economy kept spread – or risk premium – on investment-grade Chinese firms, which tend to have the most solid finances, near its widest in more than two months on Wednesday evening U.S. time.

The spread on the equivalent high-yield or ‘junk’-rated index that tracks firms such as Evergrande pulled back on Wednesday, but remained close to all-time highs.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4391 Chinese yuan)

(Reporting by Andrew Galbraith; Editing by Muralikumar Anantharaman and John Stonestreet)

Festering Evergrande Contagion Worries Push China Spreads to Record

The company, which has more than $300 billion in liabilities, on Monday missed its third round of interest payments on its dollar bonds in three weeks even as other firms warned of defaults.

In the clearest sign yet of global investors’ worries of spreading debt contagion, the option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index surged to a fresh all-time high of 2,337 basis points on Tuesday evening U.S. time, above a previous top of 2,069 basis points on Friday.

Investment grade spreads also jumped to their widest in more than two months.

“We see a risk that a disorderly correction in the property market could cause sharp price declines, hitting the personal wealth of homeowners,” Kim Eng Tan, a credit analyst at S&P Ratings, said in a report.

“Such an event could also contribute to large-scale losses by investors in wealth management products, and the contractors and service firms that support the developers.”

Evergrande did not pay nearly $150 million worth of coupons on three bonds due on Monday, following two other missed payments in September.

While the company has not technically defaulted on those payments, which have 30-day grace periods, investors say they are expecting a long and drawn-out debt restructuring process.

Chinese property companies’ bonds continued to fall on Wednesday, comprising seven of the top 10 losers among Shanghai-traded corporate bonds.

Bonds issued by developers including Shanghai Shimao Co Ltd China Aoyuan Group and Country Garden Properties Group fell between 1.6% and 7.4%, according to exchange data.

Dollar bonds also fell, although traders said limited market liquidity following earlier routs meant prices were only indicative, with tradeable prices possibly 10-20 points lower than screen prices.

Marketaxess quoted a Kaisa Group Holdings June 2026 bond as falling 0.9% to 41.125 cents. Its yield has risen to around 40%.

In equity markets, a sub-index tracking A-shares of property firms fell 0.7% against a 1.2% rise in the blue-chip CSI300 index.

Markets in Hong Kong were closed on Wednesday due to a typhoon affecting the city.

WALL OF DEBT

Evergrande’s main unit, Hengda Real Estate Group Co, faces a 121.8 million yuan onshore bond coupon payment on Oct. 19 and Evergrande has another $14.25 million dollar bond coupon due on Oct. 30.

Debt pressures extend far beyond Evergrande. Chinese property developers have $555.88 million worth of high-yield dollar bond coupons due this month, and nearly $1.6 billion due before year-end, and Refinitiv data shows at least $92.3 billion worth of property developers’ bonds maturing next year

Evergrande’s mid-sized rival Fantasia has also already missed a payment and Modern Land and Sinic Holdings are trying to delay payment deadlines that would still most likely be classed as a default by the main rating agencies.

“These stories have challenged the notion that Evergrande is one of a kind,” analysts at Capital Economics wrote in a note.

While China’s policymakers will likely be able to avoid a “doomsday scenario”, the overextended property sector will continue to weigh on the world’s second-largest economy, they said.

“Even following an orderly restructuring of the worst-affected developers with minimal contagion to the financial system, construction activity would still almost inevitably slow much further.”

The IMF said on Tuesday that China has the ability to address the issues linked to Evergrande’s indebtedness, but warned that an escalation of the situation could lead to the emergence of broader financial stress.

The $5 trillion Chinese property sector, accounts for around a quarter of the Chinese economy by some metrics and is often a major factor in Beijing policymaking.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Andrew Galbraith; Editing by Muralikumar Anantharaman and Kim Coghill)

China’s Property Sector Stalked by Evergrande Default Fears

A wave of developers face payment deadlines before the end of the year and with Evergrande’s fate looking increasingly bleak, fears are mounting of a wider crisis.

Weary Evergrande bondholders still haven’t received almost $150 million worth of coupon payments that had been due on Monday, although there was little surprise after the firm had skipped two other payments in recent weeks.

Evergrande didn’t reply to a Reuters request for comment. It has maintained radio silence for weeks and markets are now counting down to a Oct. 18-19 deadline when it will be formally declared in default if it still hasn’t stumped up.

“It is pretty serious now and it looks like it is going to be long and drawn out process,” said London-based Trium Capital fund manager Peter Kisler about Evergrande and the wider crisis.

“I don’t see the recovery being particularly high,” he said referring to what Evergrande bondholders would get if Evergrande gets broken up. “I think 20 cents (for every dollar of the bonds’ original face value) is more or less fair.”

The IMF said on Tuesday that China has the ability to address the issues linked to Evergrande’s indebtedness, with the fiscal capacity and the legal and institutional tools.

The IMF’s report, however, said that while contagion so far has been limited to other financially weak property developers and lower-rated firms, if the situation were to “escalate, there is a risk that broader financial stress may emerge.”

Problems have already spread well beyond just Evergrande.

Mid-sized rival Fantasia also missed a payment and Modern Land and Sinic Holdings are trying to delay deadlines that would still most likely be classed as a default by the main rating agencies.

Star stock picker Cathie Wood of ARK Invest seperately cautioned of an economic slowdown in China that could ripple through the global economy and weigh on commodity prices and growth.

LOOMING DEADLINES

Refinitiv data shows there is at least $92.3 billion worth of Chinese property developers’ bonds coming due next year.

Seaport Global’s EM Corporate Credit analyst Himanshu Porwal said the key dates and payments to watch this year were:

Oct. 15 – Shimao $820 million

Oct. 15 – Xinyuan $229 million

Oct. 18 – Sinic $244 million

Oct. 27 – Seazen Holdings $100 million

Nov. 8 – Central China Real Estate $400 million

Nov. 18 – Agile $200 million

Nov. 18 – Zhenro $200 million

Dec. 3 – Ronshine China $150 million

Dec. 7 – Kaisa $400 million

Dec. 17 – Fantasia $249 million

The $5 trillion Chinese property sector, accounts for around a quarter of the Chinese economy by some metrics and is often a major factor in Beijing policymaking.

“We see more defaults ahead if the liquidity problem does not improve markedly,” said brokerage CGS-CIMB in a note, adding developers with weaker credit ratings would find it very difficult to refinance debt at the moment.

Shanghai Stock Exchange data showed the top five losers among exchange-traded bonds in morning deals were all issued by property firms.

Modern Land’s dollar bond due for repayment in 2023 plunged 25% to 32.250 cents on the dollar, while Kaisa Group, which was the first Chinese property developer to default back in 2015, and Greenland Holdings, which wants to build western Europe’s tallest residential building, both saw more savage selling.

It wasn’t all one-way traffic. Sinic’s bond due in 2022 rose 12% to 19.35 cents. That still left its yield – a proxy of its likely borrowing cost if it were to try and tap financial markets – at over 1,380%. Some of Central China Real Estate’s bonds due next month also gained.

Modern Land, whose shares dropped over 3% to new low on Tuesday, asked bondholders on Monday to delay for three months a repayment due later this month, while Sinic said it would likely default next week.

BROADER FALLOUT?

Market indicators also show how contagion is slowly spreading to other high yield markets in the developing world.

Trium’s Kisler highlighted how most emerging market companies whose yields were already around the 10% mark have been hit and even riskier sovereign markets like Ecuador may be suffering some blowback.

The cost of insuring against a China sovereign default also continued to rise on Tuesday, with 5-year credit default swaps – which investors typically use as a hedge against rising risk – hitting their highest since April 2020.

Shares of several other property firms, however, fared better as markets bet on more loosening of policies following northeastern city of Harbin’s measures to support developers and their projects.

Top developers Country Garden and Sunac China both rose 2% despite a 1% drop in the wider market.

Evergrande’s electric vehicles unit also jumped over 10% after it vowed to start producing cars next year.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Scott Murdoch and Megan Davies and David Randall Editing by Shri Navaratnam, Mark Potter and Cynthia Osterman)

Marketmind: The Waiting Game

A look at the day ahead from Sujata Rao.

These narratives have kept world stocks seesawing ever since they hit record highs in early-September. Wall Street futures are down half a percent while European shares look set for an even weaker open. Big losses in Asia earlier, with Hong Kong down more than 1%.

On bonds, softer growth data is failing to derail a selloff; 10-year Treasury yields are up some 30 basis points in three weeks and on Tuesday, two-year yields touched 18-month highs.

The impact of soaring energy prices is showing up in dataprints — even in Japan, wholesale inflation hit a 13-year high. British shoppers, meanwhile, upped spending by just 0.6% in September versus 3% in August (though fuel shortages peculiar to the UK probably had an outsize impact).

Another worrying piece of data is last month’s 20% slump in Chinese car sales, which will likely ripple out to global auto shares. The Chinese slowdown could also make itself felt in Germany’s ZEW index later in the day.

On the bright side, UK payrolls hit a record high in September, with a 7.2% rise in average weekly earnings in the three months to August.

All that comes just before third quarter earnings kick off. Remember several companies have already issued downbeat assessments of how higher prices will have impacted the bottom line. Q3 earnings were never expected to match the Q2 blowout but will they fall short even of the 30% growth expected of U.S. companies? The wait is on.

Key developments that should provide more direction to markets on Tuesday:

-China’s Evergrande missed a third round of bond payments

-Japan wholesale inflation at 13-year high in September

– UK retail spending rose 0.6% in Sept vs 3% increase.

– IMF issues its updated World Economic Outlook

– ECB’s Chair of the Supervisory Board, Andrea Enria, board members Philip Lane, Frank Elderson,

– Bank of Korea holds rates, flags November hike

– German ZEW

– U.S. JOLTS job openings

– U.S. Treasury auctions $96 billion in 3-year and 10-year notes

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; editing by Huw Jones)

China’s Bond Markets Slump Again as New Evergrande Deadline Passes

High-yield Chinese bond markets were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment.

Meanwhile, the Wall Street Journal reported that Chinese President Xi Jinping is launching inspections of financial institutions to see if private firms like Evergrande had been too close to state-owned banks, investment firms and financial regulators. Large lenders to Evergrande included financial conglomerate Citic, which is being scrutinized, the WSJ reported. Citic was not immediately available for comment.

Weary investors had been holding out little hope that Evergrande would suddenly stump up Monday’s near $150 million of coupon payments, but the fact bondholders said they hadn’t received anything this time either just bolstered expectations for a full-scale default.

“The key for offshore holders is the next couple of weeks and whether any payment or communication will come from the company in relation to its first missed offshore coupon,” wrote Craig Erlam, Senior Market Analyst, UK & EMEA, at forex trading firm OANDA in a research note on Monday.

Erlam wrote that it was “highly unlikely” Evergrande would make the payment “considering how the last two deadlines have gone”.

A spokesperson for Evergrande did not immediately respond to a request for comment

Once China’s largest developer, the firm has more than $300 billion in liabilities that are now at risk.

The cash-strapped property developer’s troubles and contagion worries have sent shockwaves across global markets and the firm has already missed payments on dollar bonds, worth a combined $131 million, that were due on Sept. 23 and Sept. 29.

CST Group Limited, an investment holding company on Monday that it sold 10.5% China Evergrande Notes and 11.5% China Evergrande Notes for $815,000 and $702,000.

Other signs of stress included smaller developer Modern Land asking investors to push back by three months a $250 million bond payment due on Oct. 25 in part “to avoid any potential payment default.”

Sinic Holdings said it too was likely default next week as it didn’t have enough financial resources to make its remaining bond payments this year. It has one at the start of next week, although that bond was already down 75%.

Modern Land’s April 2023 bond with a coupon of 9.8% plunged more than 25% to 32.25 cents on the day, according to financial data provider Duration Finance, while the company’s shares have lost a third of their value over the last month.

Kaisa Group, which was the first Chinese property developer to default back in 2015, also saw some of its bonds slump to well under half their face value. R&F Properties and Greenland Holdings, which both have prestige projects in global cities like London, New York and Sydney, were also widely sold.

“It’s a disastrous day,” said Clarence Tam, fixed income portfolio manager at Avenue Asset Management in Hong Kong, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds.

“We think it’s driven by global fund outflow …. Fundamentally, we are worried the mortgage management onshore hits the developers’ cash flow hard,” he added, referring to concerns people could stop putting deposits down on new homes.

Analysts at JPMorgan also highlighted how international investors were now demanding the highest ever premium to buy or hold ‘junk’-rated Chinese debt.

There is now a whopping 1,200 basis point difference between the bank’s closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as “onshore” bonds.

“Evergrande’s contagion risk is now spreading across other issuers and sectors,” JPMorgan’s analysts said.

Another London based analyst who asked not to be named said: “Slowly and gradually we are seeing the rest of the Chinese property sector fall apart”.

SHAKY FOUNDATIONS

In equity markets, the Hang Seng Property and Construction sub-index fell 0.4% against a nearly 2% rise in the broader index.

Fantasia Group China Co, whose controlling shareholder is Fantasia Holdings, said on Monday it would adjust the trading mechanism of its Shanghai-traded bonds following credit downgrades by China Chengxin International Credit Rating Co (CCXI).

Fantasia had appointed advisers on Friday after it shocked markets by missing a bond payment earlier in the week. It saw its bonds dive from almost 100 cents on the dollar to just 20 cents, as just a couple of weeks earlier it had said its liquidity was fine.

“We believe policymakers have zero tolerance for systemic risk to emerge and are aiming to maintain a stable property market, and policy support could be forthcoming if the deterioration in property activity levels worsen,” said Kenneth Ho, head of Asia Credit Strategy at Goldman Sachs.

“That said, we also believe that policymakers do not want to over-stimulate, and their longer term goal is to deleverage the property sector.”

Harbin, the capital of northeastern Heilongjiang province, has become one of the first cities in China to announce measures to support property developers and their projects, which have been shaken by the Evergrande crisis.

Advisers to offshore bondholders said on Friday they not yet heard from Evergrande, and are also demanding more information about its plan to divest some businesses, worried a potential fire-sale could ultimately leave them with less.

Trading in shares of Evergrande, as well as its Evergrande Property Services Group unit, has been halted since Oct. 4 pending a major deal announcement.

For a look at all of today’s economic events, check out our economic calendar.

(Additional Reporting by Xiao Han and Clare Jim and Megan Davies and Niket Nishant; Editing by Mark Potter)

Not Only Leaves Are Falling

This time again, it didn’t bypass the rule and last month was indeed negative across the board for both equity and bond markets. Mostly impacted was the tech sector, because of higher treasury yields implying higher rates and thus weighing on growth companies’ future relative returns.

The other reasons for this pullback included the global resurgence of COVID-19, supply chain issues and concerns around the withdrawal of Central Banks’ support. On top of that, the US is in somewhat of a political crisis. After a shutdown had been avoided in extremis last week, the Congress has now two weeks to avoid what could be a first US default. In order to do so, the Republicans must agree to increase, or at least to suspend, the debt ceiling.

For now, they are playing with fire and unless they join the Democrats in voting to raise the debt level, the US could face a catastrophe and historic consequences, namely a US Treasuries’ default. Of course, a US default would have itself systemic consequences and the global impact on capital markets could possibly be much worse than any Pandemic or Subprime Crisis. However, to put things in perspective, this scenario has occurred before, in 2011 and in 2013, when Republicans tried to put pressure on the Obama administration.

Eventually it ended in the extension of the Treasury’s capacity. Finally, even without Republicans, Biden can invoke extraordinary measures to increase the debt limit. Therefore, even if it creates some turmoil in the near term, a US default is highly unlikely.

Central Banks’ meetings last month were pretty much in the same tone than before and with the same focus: the fast recovery allows to gradually tighten the policy and reduce the support; inflation now appears less temporary than expected and price pressures could probably continue into 2022. An interest rate hike is not imminent, and we wait for November’s meeting to have more details and timeline about the Fed’s tapering.

September was also the month of some international political changes. In Germany federal elections were held and for the first time in 16 years, Angela Merkel’s CDU party was defeated and lost its majority. Olaf Scholz of the center-left Social Democrat Party won the elections and talks are now being held to form a coalition either with the Free Democratic Party or with the Greens.

In Japan, elections also took place after Suga announced he was quitting his post of President of the LDP (Liberal Democratic Party), the majority party in the National Diet (the Japanese Parliament), and by doing so, automatically ended his term as Prime Minister after only one year.

Since then, the former Foreign Minister, Fumio Kishida, won the leadership race of the LDP and therefore became Japan’s new Prime Minister. Kishida is known to be market friendly, however he was left with quite a lot of economic issues to resolve and so some tough measures could be taken soon by the new administration.

As for China, if when the month started, some investors seemed to think that a certain balance was reached between political control and market efficiency, by the end of the month, the Evergrande huge debt crisis again overwhelmed the general sentiment. One of the most dominant Chinese companies in the most important sector (Real Estate accounts for 30% of Chinese GDP), gave us all a great example of how dangerous corporate debt could be for the entire economy when it is not limited.

And we can’t help thinking about how ironic this whole story is: after a full year of efforts of cracking down on tech companies and setting other harsh regulations to make profitable companies non-profit organizations, the biggest threat was in fact in the highly leveraged companies, one issue regulators didn’t take care of. The outcome of Evergrande’s crisis could be what will define what’s next for China.

From our side, as we continue to see record inflows to US equity ETFs, and while the current concerns over a potential US default seem to have little chance of materializing, we find that any pullback offers buying opportunities, whether it’s in strong companies moving down with the market or into bonds offering higher yields after the sell off. Also, if September unfolded by the book, then maybe we can follow the rule and expect a positive fourth quarter, as historically the last quarter is the best quarter of the year.

As always, risk-management combined with rigorous sector and geographical diversification will remain key factors for investment performance.

Sweetwood Capital provides asset management and investment advisory services to qualified high net-worth individuals. Our aim is to achieve consistent cash-flow generation for our clients through direct investments in transparent and liquid instruments. We offer a highly personalized service and construct investment portfolios that are calibrated to the risk vs. reward preferences of each client. Our clients do not take any counterparty risk through us as their assets are held in their own bank.

You are more than welcome to contact us to discuss our investment views or financial markets generally.

For a look at all of today’s economic events, check out our economic calendar.

Evergrande Eyeing $5 Billion Property Unit Sale; Rival Fantasia Misses Payment

Once China’s top-selling property group, Evergrande is facing one of the country’s largest-ever defaults as it struggles with more than $300 billion of debt. Its fate is also unsettling global markets wary about the fallout of one of China’s biggest borrowers toppling.

Evergrande on Monday said it requested a halt in the trading of its shares in Hong Kong pending an announcement about a major transaction. Evergrande Property Services Group, a spin-off listed last year, also requested a halt and said it referred to “a possible general offer for shares of the company.”

China’s state-backed Global Times said Hopson Development was the buyer of a 51% stake in the property business for more than HK$40 billion ($5.1 billion), citing unspecified other media reports. Hopson also said it had suspended its shares, pending an announcement related to a major acquisition of a Hong Kong-listed firm and a possible mandatory offer.

Neither Hopson nor Evergrande responded to requests for comment on the Global Times report.

Analysts said the possible deal signals the company is still working to meet its obligations. But it also underscored concerns about the rest of China’s property sector and the broader economy if there is a fire-sale of Evergrande’s assets.

“Selling an asset means they are still trying to raise cash to pay the bills,” said OCBC analyst Ezien Hoo. “Looks like the property management unit is the easiest to dispose in the grand scheme of things.”

There was another key development in the sector on Monday too as one of Evergrande’s smaller rivals, Fantasia Holdings’, said it had missed a $206-million bond payment deadline.

Credit ratings agency Fitch had slashed the firm’s credit rating by four notches earlier in the day, too, after the firm revealed it had underwritten another bond that it had previously not disclosed on its books.

With a market value of $415 million, Fantasia is a minnow. But its missed deadline adds to worries of a sector-wide crunch that could put further pressure on China’s already slowing economy.

The $5 billion Evergrande would earn from its reported sale meanwhile would theoretically cover the firm’s international bond payments for the next six months. It has around $500 million in coupon payments due by the end of the year, followed by a $2-billion dollar bond maturity in March.

The price represents a roughly 17.5% discount to the Services Group’s December 2020 listing valuation, although Evergrande’s group shares have slumped 80% since then.

In contrast, Hopson’s shares have jumped 40% this year making it worth around HK$60 billion ($7.8 billion).

NERVOUSNESS

Evergrande’s property services business, which says it managed a total contracted floor area of 810 million square metres at the end of June, was also profitable in the first half of 2021, based on its financial statements.

With liabilities equal to 2% of China’s gross domestic product, Evergrande has sparked concerns its troubles could spread through the global financial system.

Nervousness has eased after China’s central bank vowed to protect homebuyers’ interests, but ramifications for China’s economy kept investors on edge – particularly as signs of distress have begun spreading to Evergrande’s peers.

Monday’s share trading suspension knocked the offshore yuan, which fell about 0.3% against the dollar, and weighed on the Hang Seng benchmark index.

Still, the possible deal activity lifted shares in Evergrande’s electric vehicle unit by 29% but cast a pall over regional stocks and global markets. [MKTS/GLOB]

“It is definitely a positive move towards solving Evergrande’s liquidity crisis and we expect more to come,” said Gary Ng, senior economist Asia Pacific at Natixis.

“However, having said that, offloading some assets may not be totally sufficient, the key for Evergrande is to get project construction going and to sell inventory.”

Shares in Evergrande have plunged 80% so far this year, while its bonds have held steady at distressed levels.

The group said last month it had negotiated a settlement with some domestic bondholders and made a repayment on some wealth management products, largely held by Chinese retail investors.

Holders of the company’s $20 billion in offshore debt appear further back in the creditor queue and bondholders have said interest payments due in the past few weeks have failed to arrive.

Evergrande faces deadlines on dollar bond coupon payments totalling $162.38 million in October.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 7.7868 Hong Kong dollars)

(Reporting by Tom Westbrook in Singapore and Donny Kwok and Alun John in Hong Kong; Additional reporting by Anne Marie Roantree and Marc Jones in London; Editing by Kenneth Maxwell, Shri Navaratnam and Jane Merriman)

Hong Kong Finance Chief Says City’s Exposure to Evergrande ‘very minimal’ – SCMP

“It is very minimal and won’t cause us any systemic risks,” Financial Secretary Paul Chan told the newspaper, adding he had arrived at the conclusion after a recent audit of the local banking sector’s exposure to the company.

Chan also said Hong Kong’s stock market was inevitably subject to some volatility amid a recent mainland crackdown on some industries, but that he believed any setback would be temporary.

With liabilities of $305 billion, Evergrande has sparked concerns its cash crunch could spread through China’s financial system and reverberate globally, a worry that has eased with the Chinese central bank’s vow this week to protect homebuyers’ interests.

Evergrande has missed two bond interest payments in the past two weeks, bondholders have said, and its offshore debt, amounting to about $20 billion, trades at distressed levels.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Donny Kwok; Editing by Christopher Cushing)

Evergrande, Facing Coupon Payment Deadline, Sells Bank Stake to Repay Loan

With liabilities of $305 billion, Evergrande has sparked concerns its woes could spread through China’s financial system and reverberate around the world – a worry that has eased with the Chinese central bank vowing to protect homebuyer interest.

Evergrande said in an exchange filing that it would sell a 9.99 billion yuan ($1.5 billion) stake it owns in Shengjing Bank Co Ltd to a state-owned asset management company.

The bank, one of Evergrande’s main lenders, demanded all net proceeds from the sale go towards settling the developer’s debts with Shengjing. As of the first half last year, the bank had 7 billion yuan in loans to Evergrande, according to a report by brokerage CCB International, citing news reports.

The move underscores how Evergrande, once China’s top-selling developer and now expected to be one of the largest-ever restructurings in the country, is prioritising domestic creditors over offshore bondholders. It also highlights the role state-owned enterprises may play in Evergrande’s denouement.

The company is due on Wednesday to make a $47.5 million bond interest payment on its 9.5% March 2024 dollar bond.

The company missed a payment deadline on a dollar bond last week, a day after its main property business in China said it had privately negotiated with onshore bondholders to settle a separate coupon payment on a yuan-denominated bond.

Evergrande’s silence on its offshore payment obligations has left global investors wondering if they will have to swallow large losses when 30-day grace periods end for coupon payments due on Sept. 23 and Sept. 29.

A spokesperson for Evergrande did not immediately respond to Reuters request for comment.

“We are in the wait-and-see phase at the moment. The creditors are organising themselves and people are trying to figure out how this falling knife might be caught,” said an advisor hired by one of the offshore Evergrande bondholders.

“They failed to pay last week, I think they will probably fail to pay this one. That doesn’t mean necessarily they’re not going to pay … they’ve got the 30-day grace period,” said the advisor declining to be named due to sensitivity of the issue.

GOVERNMENT PRODDING

Once the face of China’s frenzied building boom, Evergrande has now become the face of a crackdown on developers’ debts that has spurred volatility in global markets and left large and small investors sweating their exposure.

Evergrande’s troubles slammed global stock markets earlier this month.

In the weeks since, some global investors have shifted their focus to political wrangling in Washington over the U.S. debt ceiling and a rise in Treasury yields that has pressured stocks. [.N]

Any negative surprise by Evergrande could give stock market bears more ammunition.

Rating agency Fitch on Wednesday downgraded the long-term foreign-currency issuer default ratings (IDRs) of Evergrande and its subsidiaries, Hengda and Tianji, citing likely non-payment of offshore bond interest last week.

Beijing is prodding government-owned firms and state-backed property developers such as China Vanke Co Ltd to purchase some of Evergrande’s assets, people with knowledge of the matter told Reuters.

Authorities are hoping that asset purchases will ward off or at least mitigate any social unrest that could occur if Evergrande were to suffer a messy collapse, they said, declining to be identified due to the sensitivity of the matter.

On Monday, China’s central bank vowed to protect consumers exposed to the housing market, without mentioning Evergrande in a statement posted to its website, and injected more cash into the banking system.

Those moves have boosted investor sentiment towards Chinese property stocks in the last couple of days, with Evergrande stock rising as much as 17% on Wednesday. The stock was up around 11% in the afternoon trade.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Clare Jim, Karin Strohecker, Donny Kwok; Writing by Ira Iosebashvili and Sumeet Chatterjee; Editing by Stephen Coates)

Marketmind: When It Rains, It Pours

A look at the day ahead from Dhara Ranasinghe.

For a second day in a row, U.S. Senate Republicans blocked a bid by President Joe Biden’s Democrats to head off a potentially crippling U.S. credit default.

With federal government funding expiring on Thursday and borrowing authority running out around Oct. 18, the Democrats are trying to head off twin fiscal disasters while also trying to advance Biden’s ambitious legislative agenda.

A shutdown could result in furloughs for hundreds of thousands of federal workers in the middle of a public health crisis.

For markets, the timing couldn’t be worse.

Cash-strapped China Evergrande Group is scrambling to sell some of its assets ahead of the expiry of another deadline to make a bond coupon payment to offshore investors. Several regions of the world’s No. 2 economy are also paralysed by electricity shortages.

Meanwhile a surge in bond yields has unnerved markets globally. Ten-year U.S. yields are up 20 basis points so far this month, their biggest gain since March.

This morning though, Treasury and European bond markets are on more stable ground while European and U.S. stock futures are higher. And sterling, which has taken a beating on fears that fuel crisis will hurt growth, too is recovering.

Markets will be listening carefully to heavyweight policymakers when they speak at a European Central Bank forum later on Wednesday – the ECB’s Christine Lagarde, the Bank of England’s Andrew Bailey and Fed chief Jerome Powell are all on the agenda for 15:45 GMT.

Key developments that should provide more direction to markets on Wednesday:

-Oil falls for second day as supply-driven rally peters out

– Soft-spoken consensus builder Kishida to become Japan’s next PM

– Japan may kick off process to sell $8.5 bln shares in Japan Post- Bloomberg

– JPMorgan’s Dimon cautions a U.S. default would be ‘potentially catastrophic’

– Emerging markets: Thailand central bank

– Euro zone inflation expectations, consumer sentiment

– Europe earnings: Next

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Dhara Ranasinghe; editing by Sujata Rao)

Unpaid by Evergrande, Supplier Sells Porsche and Home to Rescue His Business

In the meantime, the 50-year-old known by friends and colleagues as “Brother Hui”, has sold his Porsche Cayenne and put his apartment on the market in a scramble to raise cash to pay debts and wages.

“We’ve reached out to those in charge but they either say they have no money or don’t know when they can settle the payments,” Guo said from his office at the back of a building in a street in Guangzhou’s Tianhe district that is lively with small restaurants and stalls.

His case is typical of countless suppliers left on the hook by China Evergrande, based in nearby Shenzhen, which was the country’s top-selling property developer before running short of cash this summer under the weight of $305 billion in debt.

Originally from Sichuan province, Guo founded his cleaning business, called Feiyun, more than two decades ago.

Like many self-made entrepreneurs of his generation, Guo sees his as a rags-to-riches story that went hand in hand with the economic rise of China.

He said he has been working since 2017 with Evergrande, which accounted for 90% of his business when he started to face problems in June, when payments on commercial paper issued by the company stopped.

China Evergrande did not immediately respond to a request for comment on Guo’s assertions.

“We’re left in a very passive situation,” he said.

Feiyun provides cleaning and repair services for Evergrande apartments in Guangdong province, ensuring that new builds are clean before being shown to prospective buyers.

It has about 100 permanent staff and uses 700 to 800 contractors, depending on demand, most of them migrants from less-wealthy inland provinces, Guo said.

“Frankly, Evergrande really owes the money to ordinary migrants who worked hard for it,” he said.

A few months ago, Guo had a team of 300 cleaning thousands of apartments at the high-end Zhanjiang Evergrande Waitan Gardens development in the southwest tip of the province on two contracts totalling about 1.5 million yuan.

“They worked day and night for us. I’m doing my best to pay them from loans I’ve taken out, but I can only manage a third or fourth of it. We still owe them about 2 million yuan,” said Hui, referring to staff arrears on three different projects.

Maotai bottles lined the shelves behind Guo, the single photo on his desk showed him skiing in northern China in 2017, “before things got hard”.

An outdoors enthusiast, Guo had been planning eventually to hand his business over to his son Guo Jing, who stood listening nearby, so that he and his wife could travel abroad – plans thwarted first by the COVID-19 pandemic and then Evergrande’s crisis.

Beijing has been largely quiet on the Evergrande situation, which has rattled global markets and left investors as well as hundreds of thousands buyers of unfinished apartments facing uncertainty, triggering protests at Evergrande offices this month.

“We can only wait for Evergrande to sort itself out or for the government to help,” Guo said. “No matter what, I still believe in the government. This must have a conclusion.”

The next day, Guo drove to a Porsche dealership to sell back what he sees as a symbol of his hard work. He asked to sit in it one more time after the papers were signed.

“This is what the Evergrande situation has come to,” he said at the dealership, adding that he could now only wait for the government and courts to act.

Having come from poverty once, Guo is confident his fortunes will turn.

“I’ll definitely buy my car back, when I make some money. I’m sure I’ll be able to get it back.”

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4662 Chinese yuan renminbi)

(Reporting by David Kirton; Editing by Tony Munroe and Mark Potter)

PBOC Promises to Protect Consumers as China Evergrande Teeters

Once the epitome of an era of helter-skelter borrowing and building in China, Evergrande has now become the poster child of a crackdown on developers’ debts that has left investors large and small sweating their exposure.

In a letter to investors seen by Reuters, the Shenzhen Financial Regulatory Bureau said “relevant departments of the Shenzhen government have gathered public opinions about Evergrande Wealth and are launching a thorough investigation into related issues of the company.”

It is also urging China Evergrande and Evergrande Wealth to work to repay investors, the letter said, which was sent following investor demands for an inquiry.

The People’s Bank of China (PBOC) made no mention of Evergrande in a statement posted to its website, which contained just a line on housing along with promises to make its monetary policy flexible, targeted and appropriate.

But at a delicate moment for the world’s most indebted developer, which missed a bond interest payment last week and has another due this week, its pledge to “safeguard the legitimate rights of housing consumers” hinted at the sort of response markets had begun to hope for.

With liabilities of $305 billion, Evergrande has sparked concerns its problems could spread through China’s financial system and reverberate around the world – a worry that has eased as damage has so far been concentrated in the property sector.

The PBOC’s broad-ranging statement was issued after the third quarter meeting of its Monetary Policy Committee. Its housing line echoed comments from Evergrande’s leadership that point to containment efforts and prioritizing small investors in properties ahead of foreign holders of Evergrande debts.

“We expect that any impact to the banking system will be manageable and that the government will instead focus on the social fallout of unfinished housing units,” said Sheldon Chan, who manages T. Rowe Price’s Asia credit bond strategy.

Suppliers exposed to Evergrande payables and domestic bondholders would also take priority over dollar bond holders, he said.

Evergrande dollar bonds have been trading accordingly, and remained on Monday at distressed levels around 30 cents on the dollar.

Research firm Morningstar listed BlackRock, UBS, Ashmore Group and BlueBay Asset managers as bondholders with exposure to Evergrande in a Friday report which said funds at HSBC and TCW had closed positions.

Ashmore, BlackRock, BlueBay, HSBC, TCW and UBS declined to comment.

Evergrande’s stock rose 8%, though at HK$2.55 it isn’t far above last week’s decade-low of HK$2.06 and stock borrowing costs have surged as short sellers pile in.

Shares of Evergrande’s electric car unit fell heavily after it warned of an uncertain future.

Work on a soccer stadium Evergrande is building in Guangzhou is proceeding as normal, the company said on Monday.

The focus now turns to whether a coupon payment of $47.5 million due on Wednesday is made, and then to whether China can contain the economic damage if Evergrande collapses.

Its struggles so far to pay suppliers and sell assets have already begun to dent confidence among homebuyers and force sector-wide price cuts, signaling that consolidation – at the very least – looms for the real estate industry.

“Evergrande’s potential credit event, in our view, is part of a ‘survival of the fittest’ test in China’s property sector,” Deutsche Bank strategist Linan Liu said in a note to clients.

“Allowing orderly exits by weaker players in the property sector, while painful, is necessary to improve overall leverage conditions in the sector and bring about a soft landing.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Ryan Woo in Beijing, Anne Marie Roantree in Hong Kong and Tom Westbrook in Singapore Writing by Tom Westbrook Editing by Stephen Coates, Mark Potter and Nick Zieminski)

China Steps up Funding Oversight of Evergrande Property Projects – Caixin

Reeling under $305 billion of debt, Evergrande missed a payment deadline on a dollar bond last week, and its silence on the matter has set global investors wondering if they will have to swallow large losses when a 30-day grace period ends.

The special accounts have been set up since late August in at least eight provinces where Evergrande has the most unfinished projects, the Chinese outlet said on Sunday, citing a source close to the developer’s management team.

These include Anhui, Guizhou, Henan, Jiangsu and cities in the southern Pearl River Delta, it added.

The custodian accounts aim to ensure homebuyers’ payments are used to complete Evergrande’s housing projects, and not diverted elsewhere, such as to creditors, Caixin said.

In some southern cities, such as Zhuhai and Shenzhen, the offices of the housing regulator, the Ministry of Housing and Urban‑Rural Development, were also involved in overseeing and reviewing fund use by Evergrande’s projects, it said.

Evergrande and the housing ministry did not immediately respond to requests for comment.

In recent months, the cash-strapped developer, which epitomises the borrow-to-build business model, has stopped repaying some investors and suppliers and halted building work at many projects across China.

The housing regulator has also set a Sept. 24 deadline for regional offices to report on the funding gaps facing Evergrande’s unfinished projects, Caixin said, but it was not immediately clear if this had been met.

By the end of June, Evergrande still had 1,236 projects for sale, it said in a semi-annual report, including those completed and under construction.

Last week, the Wall Street Journal newspaper said Chinese authorities had asked local governments to prepare for a possible collapse of Evergrande, urging them to prevent unrest and mitigate ripple effects on the rest of the economy.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Cheng Leng, Yilei Sun and Ryan Woo; Editing by Clarence Fernandez)

Dollar Climbs as Evergrande Uncertainty Percolates

China Evergrande Group owes $305 billion and has run short on cash, missing a Thursday deadline for paying $83.5 million and leaving investors questioning whether it will make the payment before a 30-day grace period expires. A collapse of the company could create systemic risks to China’s financial system.

The safe-haven dollar had its biggest one-day percentage drop in about a month on Thursday after Beijing injected new cash into the financial system and Evergrande announced it would make interest payments on an onshore bond, boosting risk sentiment.

The offshore Chinese yuan weakened versus the greenback at 6.4641 per dollar.

The decline came a day after the greenback was lifted by Wednesday’s announcement from the U.S. Federal Reserve that it will likely begin to trim its monthly bond purchases as soon as November and flagged interest rate increases may follow suit sooner than expected as the central bank moves away from its pandemic crisis policies.

“We are in one of the situations, and this doesn’t always happen, where the dollar is the beneficiary of multiple ideas,” said Joseph Trevisani, senior analyst at FXStreet.com.

“The U.S. economy does look better than most of its competitors, there is lingering fear out there over Evergrande and what else is out there in the rather untransparent Chinese economy and political system, plus the Fed appears finally ready.”

The dollar index rose 0.237%, with the euro down 0.2% to $1.1713.

Kansas City Fed President Esther George said the U.S. labor market has already met the central bank’s test to pare its monthly bond purchases, and the discussion should now turn to how its massive bondholding could complicate the decision on when to hike rates.

Cleveland Fed President Loretta Mester echoed the sentiment for a tapering this year, and said the central bank could start raising rates by the end of next year should the job market continue to improve as expected.

In prepared remarks in a listening session with a wide swath of economic players, Fed Chair Jerome Powell did not elaborate on his own economic or monetary policy outlook, which he had outlined at the close of the two-day Fed meeting on Wednesday.

Sterling weakened a day after hawkish comments from the Bank of England on Thursday pushed the pound to its biggest one-day percentage gain since Aug. 23.

The Japanese yen weakened 0.43% versus the greenback at 110.77 per dollar, while Sterling was last trading at $1.3666, down 0.36% on the day.

Cryptocurrencies slumped after China’s most powerful regulators increased the country’s crackdown on the digital assets, with a blanket ban on all crypto transactions and crypto mining.

Bitcoin, the world’s largest cryptocurrency, last fell 5.89% to $42,256.47.

Smaller coins, which generally move in tandem with bitcoin, also dropped. Ether last fell 8.08% to $2,899.10 while XRP last fell 7.2889413% to $0.93.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak; Editing by Dan Grebler and Sonya Hepinstall)

Evergrande Misses Payment Deadline, EV Unit Warns of Cash Crunch

Evergrande owes $305 billion, has run short of cash and investors are worried a collapse could pose systemic risks to China’s financial system and reverberate around the world.

The company missed a payment deadline on a dollar bond this week and its silence on the matter has left global investors wondering if they will have to swallow large losses when a 30-day grace period ends.

China Evergrande New Energy Vehicle Group, meanwhile, said without a strategic investment or the sale of assets its ability to pay staff and suppliers and mass produce vehicles would be hit.

Evergrande’s silence on this week’s $83.5 million interest payment contrasts with its treatment of its domestic investors.

On Wednesday, Evergrande’s main property business in China said it had privately negotiated with onshore bondholders to settle a separate coupon payment on a yuan-denominated bond.

“This is part of the tactics of any sovereign-driven restructuring process – keeping people in the dark or guessing,” said Karl Clowry, a partner at Addleshaw Goddard in London.

“The view from Beijing is offshore bondholders are largely Western institutions and so can justifiably be given different treatment. I think people think it’s still a falling knife.”

China’s central bank again injected cash into the banking system on Friday, seen as a signal of support for markets. But authorities have been silent on Evergrande’s predicament and China’s state media has offered no clues on a rescue package.

“These are periods of eerie silence as no one wants to take massive risks at this stage,” said Howe Chung Wan, head of Asia fixed income at Principal Global Investors in Singapore.

“There’s no precedent to this at the size of Evergrande … we have to see in the next ten days or so, before China goes into holiday, how this is going to play out.”

Evergrande is expected to be one of the largest-ever restructurings in China and hopes are not high for a swift resolution.

The liabilities of China’s HNA group pale in comparison but its insolvency is still ongoing, with creditors seeking $187 billion, according to a source familiar the talks. On Friday, police seized both the HNA chairman and its CEO.

So far, there have been few signs of stress in money and credit markets as well as other areas that would signal that the crisis was spreading beyond China.

APPOINTS ADVISERS

Evergrande appointed financial advisers and warned of default last week and world markets fell heavily on Monday amid fears of contagion, though they have since stabilised.

The conundrum for China’s leaders is how to impose financial discipline without fuelling social unrest, since an Evergrande collapse could crush a property market which accounts for 40% of Chinese household wealth.

Protests by disgruntled suppliers, home buyers and investors last week illustrated discontent that could spiral in the event a default sparks crises at other developers.

China’s fragmented property market is showing some signs of strain, which could spur a wave of consolidation among real estate companies.

Capital Economics’ senior China economist, Julian Evans-Pritchard, said Evergrande’s crisis had had a much bigger impact on housing demand than he had anticipated, and households had turned much more cautious, triggering a drop in prices.

“I think Evergrande is going to have real issues. I don’t think the interest payment is going to be made,” Marc Lasry, CEO of Avenue Capital Group, said on CNBC Friday. Lasry said he had sold Evergrande’s bonds.

Global markets on Friday seemed rattled by the missed payment and regulatory silence.

PLAY FOR TIME

Some $20 billion of Evergrande’s debts are owed offshore while at home there are risks for China’s property sector and its liabilities spread across bank balance sheets and beyond.

There have been few signs of official intervention. The People’s Bank of China’s 270 billion yuan ($42 billion) cash injection this week is the largest weekly sum since January and has helped put a floor under stocks.

Bloomberg Law also reported that regulators had asked Evergrande to avoid a near-term default, citing unnamed people familiar with the matter.

The Wall Street Journal said, citing unnamed officials, that authorities had asked local governments to prepare for Evergrande’s downfall and distress is already evident among Evergrande’s peers.

Some banks, insurers and shadow banks have begun checks on their exposure to the troubled sector.

“We are concerned about the spillovers into the real economy and broader credit conditions,” said analysts at Societe Generale in a note. “The longer policymakers wait before acting, the higher the hard-landing risk.”

Analysts at BoFA Global Research, however, are among those who believe Chinese officials will be able to contain any Evergrande fallout.

“China has both the will and the tools to ring-fence a property crisis. Allowing the crisis to continue to escalate could threaten the key goal of social stability,” they said in a recent report.

Evergrande’s shares fell about 13% on Friday, while stock of its electric-vehicle unit dropped 20% to a four-year low. Its bonds fell slightly and its offshore bonds with imminent payments due last sat around 30 cents on the dollar and were thinly traded.

“It is clear now that Evergrande will make use of the 30-day grace period, to see if there is any further development or instructions from the government,” said Jackson Chan, assistant manager of fixed income research at research portal Bondsupermart.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 6.4589 Chinese yuan renminbi)

(Reporting by Anshuman Daga and Tom Westbrook in Singapore, Andrew Galbraith in Shanghai and Kirstin Ridley in London. Additional reporting by Clare Jim in Hong Kong. Writing by Tom Westbrook; Editing by Jane Merriman, Jason Neely and Nick Zieminski)

Explainer – How China Evergrande’s Debt Troubles Pose a Systemic Risk

WHAT IS EVERGRANDE?

Chairman Hui Ka Yan founded Evergrande in Guangzhou in 1996. It is China’s second-largest property developer with $110 billion in sales last year, $355 billion in assets, and over 1,300 developments nationwide. It listed in Hong Kong in 2009.

Evergrande grew rapidly through a loan-supported land-buying spree and selling apartments quickly at low margins. It has 200,000 staff and hires 3.8 million annually for developments.

Slowing growth has seen it branch into businesses such as insurance, bottled water, football and electric vehicles (EVs).

HOW DID CONCERNS ARISE OVER DEBT?

In September last year, a leaked letter showed Evergrande pleading for government support to approve a now-dropped backdoor stock market listing. Sources told Reuters the letter was authentic; Evergrande called it fake.

In June, Evergrande said it did not pay some commercial paper on time, and in July a court froze a $20 million bank deposit held by the firm at the bank’s request.

The firm in late August said construction at some of its developments had halted due to missed payments to contractors and suppliers. Sources have told Reuters that it also missed payments to bank and trust loans in the past few weeks.

Liabilities, including payables, total 1.97 trillion yuan ($306.3 billion) – about 2% of China’s gross domestic product.

HOW HAS EVERGRANDE REDUCED DEBT?

Evergrande accelerated efforts to cut debt last year after regulators introduced caps on three debt ratios, dubbed the “three red lines”. It aims to meet requirements by 2022-end.

It offered steep discounts on residential developments to spur sales and sold the bulk of its commercial properties. Since the second half of 2020, it has had a $555 million secondary share sale, raised $1.8 billion by listing its property management unit, and saw its EV unit sell a $3.4 billion stake.

On Sept. 14, it said asset and equity disposal plans had failed to make material progress.

WHAT’S THE RISK?

The central bank in 2018 said companies including Evergrande might pose systemic risk to China’s financial system.

The firm’s liabilities involved as many as 128 banks and over 121 non-banking institutions, the leaked letter showed.

Late repayments could trigger cross-defaults as many financial institutions are exposed via direct loans and indirect holdings through different financial instruments.

In the U.S. dollar bond market, Evergrande accounts for 4% of Chinese real estate high-yielding debt, data from Singapore bank DBS showed. A default could further trigger a sell-off across high-yield credit markets.

WHAT ABOUT OPERATIONS OUTSIDE MAINLAND CHINA?

In Hong Kong, Evergrande owns an office tower and residential development as well as two nearly completed residential developments, plus a vast undeveloped land parcel.

It has spent billions of dollars acquiring stakes in automobile technology developers, including Sweden’s NEVS, the Netherlands’ e-Traction and Britain’s Protean. It also has joint ventures with Germany’s Hofer and Sweden’s Koenigsegg.

WHAT HAVE REGULATORS SAID?

The central bank and banking regulator in August ordered Evergrande to reduce debt risk.

Regulators have approved an Evergrande proposal to renegotiate payment deadlines with banks and other creditors, media reported. Guangzhou government is also seeking major lenders’ opinions about establishing a creditor committee.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Clare Jim; Editing by Sumeet Chatterjee, Stephen Coates, Christopher Cushing and Jane Merriman)

Evergrande Bondholders Run Out of Hope for Coupon Payment on Thursday – Source

The property developer was instead expected to provide more information in the coming month, the source said.

Global investors have been on tenterhooks ahead of Evergrande’s payment obligations as there are fears its difficulties could pose systemic risks to China’s financial system, and possibly spill over to other markets.

Evergrande, which epitomises the borrow-to-build business model and was once China’s top-selling developer, has run into trouble over the past few months as Beijing tightened rules in the property sector to rein in debt levels and speculation.

Evergrande was due to pay $83.5 million in interest on a $2 billion offshore bond on Thursday and also has a $47.5 million dollar-bond interest payment next week.

Both would default if the company, which has outstanding debt of $305 billion, fails to settle the interest within 30 days of the scheduled payment dates.

By midnight in Hong Kong, there had been no announcements by Evergrande about the payment.

The company has yet to make an announcement about its plans for Thursday’s offshore bond coupon payment and a company spokesperson did not respond to requests for comment.

Earlier on Thursday, Bloomberg Law reported that Chinese regulators had asked Evergrande executives to avoid a near-term default on its dollar bonds and to communicate proactively with bondholders, citing people familiar with the matter.

“They don’t want a default right now,” said Connor Yuan, the head of emerging market flow credit trading for Asia at Goldman Sachs. “Given there is a 30-day grace period, I think today it’s very likely the coupon won’t be made but it is possible that they try to get a deal done in the next 30 days.”

The Wall Street Journal reported separately on Thursday that Chinese authorities were asking local governments to prepare for the potential downfall of Evergrande, China’s second-biggest property developer, citing officials familiar with the talks.

A spokesperson for Evergrande, China’s second-biggest property developer, declined to comment on the two reports.

“Evergrande is a serious situation but we see it as quite contained both in terms of the sector, mainly Chinese real estate, and mostly Chinese counterparties,” Jean-Yves Fillion, chief executive officer of BNP Paribas USA, told CNBC on Thursday.

“Historically we have seen the Chinese administration taking care of these type of situations and resolving them. The linkages between the Evergrande situation and the strong U.S. equity market we see as not very significant.”

SHARES BOUNCE BACK

Investors worry that the Evergrande rot could spread to creditors including banks in China and abroad, though analysts have been downplaying the risk that a collapse would result in a “Lehman moment,” or a systemic liquidity crunch.

Still, central bankers say they are keeping a close eye on Evergrande. The Bank of England said on Thursday it did not expect the situation to go badly wrong and was cautiously optimistic Beijing would avoid any major issues.

Switzerland’s central bank, meanwhile, said Evergrande should not be dismissed as a small, local problem.Shares in Evergrande rose nearly 18% on Thursday after it said it had resolved the coupon payment for one of its domestic, onshore bonds, though the stock is down more than 80% this year.

Shares in Evergrande Property Services rose nearly 8% and relief spread to mainland property stocks listed in Hong Kong. Country Garden, China’s largest developer, climbed 7%, Sunac China jumped 9% and Guangzhou R&F Properties ended 7.5% higher.

Evergrande Chairman Hui Ka Yan urged his executives late on Wednesday to ensure the delivery of quality properties and the redemption of its wealth management products, which are typically held by millions of retail investors in China.

He did not mention the company’s offshore debt, however.

The WSJ said local governments had been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions.

They have also been ordered to talk to local state-owned and private property developers to prepare to take over projects and set up law-enforcement teams to monitor public anger and “mass incidents”, a euphemism for protests, it said.

Analysts said the moves by Beijing underscored the pressure on Evergrande, whose liabilities run to 2% of China’s gross domestic product, to contain the fallout from its credit crunch and protect mom-and-pop investors over professional creditors.

‘ALL MY SAVINGS’

Oscar Choi, founder and chief investment officer at Oscar and Partners Capital Ltd, said Evergrande was wary of inflaming social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their losses.

Once those priorities had been met, Evergrande would talk to its other creditors, he said, adding: “Otherwise a few hundred thousand people will fight with the government.”

Fitch Ratings said on Sept. 16 that it had cut its 2021 economic growth forecast for China to 8.1% from 8.4%, citing the impact of the slowdown in the country’s property sector on domestic demand.

Underscoring the scramble to avoid contagion, Chinese Estates Holdings, Evergrande’s second-biggest shareholder, said on Thursday it had sold $32 million of its stake and planned to sell the rest.

Some analysts say it could take weeks for investors to have any clarity about how the Evergrande situation will resolve.

“The company could restructure its debts but continue in operation, or it could liquidate,” wrote Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. In either case, investors in the company’s financial instruments would likely suffer some losses, he wrote.

“In the event of a liquidation, however, Chinese and global investors could decide that the contagion could spread beyond China,” he said.

At an eerily quiet construction site in eastern China, worker Li Hongjun said Evergrande’s crisis meant he will soon run out of food while Christina Xie, who works in the southern city of Shenzhen, feared Evergrande had swallowed her savings.

“It’s all my savings. I was planning to use it for me and my partner’s old age,” said Xie. “Evergrande is one of China’s biggest real estate companies … my consultant told me the product was guaranteed.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Anshuman Daga in Singapore, Clare Jim in Hong Kong, Andrew Galbraith in Shanghai and Karin Strohecker in London and Megan Davies in New YorkWriting by Anne Marie Roantree and Sumeet ChatterjeeEditing by Stephen Coates, David Clarke and Matthew Lewis)