Analysis – China’s real estate loan issuers face “evergrande premium” amid growing concerns

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FILE PHOTO: Workers walk through the construction site of a project developed by China Evergrande Group on September 22, 2021 in Beijing, China. Reuters / Carlos Garcia Rollins

September 23, 2021

Scott Murdoch and Tom Westbrook

HONG KONG (Reuters) – New funding to pay out nearly $300 billion in bonds over the next two years as China Evergrande Group struggles to mount uncertainty and gain control of China’s junk bond market, access pressure on peers is growing.

Evergrande, once a best-selling developer, is now approaching one of China’s biggest restructurings as debt action has ended a bohemian era of haunted city and notorious debt building everywhere. I am

If you do not pay the interest within 30 days on Thursday, Evergrande will issue the dollar bond in default. The risk is that the messy liquidation would deplete the entire real estate sector, which accounts for a quarter of the country’s GDP.[L1N2QP048]

As a result of the tensions, some Chinese real estate developers have been downgraded by government agencies as concerns have risen about debt and repayment capacity, which has put pressure on borrowing costs.

Debt bankers are currently interested in opening up the market for fresh lending, as Evergrande’s fate remains uncertain and those who have to turn to the market will probably have to pay. He said that some companies are doing this.

“Loan prices have been revised upwards and some developers may be locked out,” Michele Lowy, CEO of asset management group SClowy, told Reuters. “Not across the region,” he said, but “investors will certainly pay more attention to which developers to fund.”

Global investors are tensed as Evergrande’s debt repayment obligations, operating under a $305 billion debt pile, have raised concerns that its malicious intent could pose systemic risks to China’s financial system. It was inside.

China’s real estate development bonds typically offer yields of 4% to 12%, depending on their credit rating and balance sheet strength, and recent modest transactions are on top of that range.

For example, Redsun Properties Group Ltd, which raised $210 million with a 7.3% coupon in May, on Monday issued a $200 million bond with a 9.5% coupon.

Despite the recovery of global debt, high-yield bond indexes have tanked for months, as concerns about Evergrande’s plight engulfed markets.

According to Dealogic data, an estimated $32 billion worth of bonds issued by Chinese developers will be refinanced by the end of 2022 before major transactions close in 2022.

According to data from Dealogic, about $125 billion worth of developer loans (led by Evergrande, who owns five of the top ten maximum maturities valued at about $6.3 billion) will be paid off next year. $140.7 billion will mature by 2023.

This figure includes both onshore and offshore bonds issued by Chinese developers in dollars and yuan.

“If there was a deal this week, the main reaction would have been, ‘Okay, I need a premium,'” said one Hong Kong loan banker, who could not be named because he did not have the authority to say. Media.

“Nobody has paid Evergrande premiums for the past few weeks, but are you planning to pay that premium by the end of the year? You have to see how long it will last.”

money will find its way

The Chinese market reopened on Wednesday after the holidays, but remained quiet until the normally busy period of October, when companies finalized their quarterly balance sheets and tried to open markets.

Some Chinese real estate developers have begun to sell their properties and seek alternative sources of funding, and in some cases shareholders, as the expansion spreads, adding to regulatory difficulties in accessing capital.

According to Fitch, Guangzhou R&F Properties, which has a $1.9 billion debt maturity within 12 months, has already turned elsewhere and sold its subsidiary and secured a loan from 25 of its largest shareholders. We have raised $100 million in funding.

Shares of Cynic Holdings (Group) rose nearly 90% after Fitch’s outlook was downgraded, after the S&P’s downgrade to CCC+ on Tuesday, and before the close of trading on Monday, and other companies. struggled. I am

According to S&P Global Ratings, Cynic was unable to communicate a clear repayment plan.

Redson and R&F declined to comment on Thursday, and Cynic did not immediately respond to a request for comment.

Jonathan Reich, partner at Hogan Lovells, told Reuters: “I don’t think the doors to capital markets will be completely closed for Chinese real estate developers, but when and who will consider debt financing or refinancing. That will be a problem.” . “

“Some issuers may have a small premium, but the global market is currently so liquid that money will flow into these companies.”

(Reporting by Scott Murdoch in Hong Kong and Tom Westbrook in Singapore. Additional reporting by Claire Jim, edited by Sumeet Chatterjee and Nick McPhee)

Analysis – China’s real estate loan issuers face “evergrande premium” amid growing concerns

Source Link Analysis – China’s real estate loan issuers face “evergrande premium” amid growing concerns

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