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Home Sales Slump Deepens; Trust Payments Due: Evergrande Update

An aerial view of construction sites and new residential developments in the Nanchuan area of Xining, Qinghai province, China, on Tuesday, Sept. 28, 2021. China has urged financial institutions to help local governments stabilize the rapidly cooling housing market and protect the rights of some homebuyers, another signal that authorities are worried about fallout from the debt crisis at China Evergrande Group. Photographer: Qilai Shen/Bloomberg
By Bloomberg
01 Dec 2021 0

China’s struggling real estate firms had another miserable month in November as a slump in home sales deepened.

The country’s developers are facing $12 billion in trust payments coming due in December, posing a major challenge for an industry whose liquidity squeeze has spooked global markets. A gauge of real estate stocks gained 1%, while China Evergrande Group fell as much as 5.2%.

Even though more negative news about real-estate issuers may spur market volatility and put bonds in distressed territory, China’s issuer-based bond default rates may stay stable this month, Bloomberg Intelligence analyst Jason Lee wrote. He said the market may reverse from its selloff amid positive developments.

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Key Developments:

China Home Sales Slump Deepens (10:47 a.m. HK)

China’s struggling real estate developers had another miserable month in November as a slump in home sales deepened.

Contract sales by the country’s top 100 developers plunged 38% from a year earlier to 751 billion yuan ($118 billion), sharper than the 32% drop in the previous month, according to preliminary data compiled by research firm China Real Estate Information Corp.

A widening debt crisis at firms including Evergrande and official efforts to rein in property speculation have combined to crush home demand and hit the world’s second-largest economy, forcing authorities to ease curbs and soothe homebuyer concerns.

Arkkan Raises $245 Million for China Real Estate Recovery Fund (9:48 a.m. HK)

Arkkan Capital, a credit-focused Asian special situations fund manager, has completed the first close for a China real estate recovery fund. The firm, founded by former Goldman Sachs banker Jason Brown, plans additional closes for Arkkan China Real Estate Fund in first half of 2022

China Baida Unit Sues Fantasia Over 100m Yuan Loan Repayment (8:33 a.m. HK)

Investment holding company Baida Group said one of its subsidiaries sued property developer Fantasia Holdings Group and its Hangzhou unit over the repayment of a 100 million yuan ($16 million) loan. A court in Hangzhou has accepted the lawsuit.

China Default Rate Improves for Another Month, Bloomberg Intelligence Says (7:30 a.m. HK)

China’s issuer-based bond default rates may stay stable in December even though more negative news about real-estate issuers may spur market volatility and put more bonds in distressed territory, Bloomberg Intelligence analyst Jason Lee wrote, adding that the market may reverse from its selloff amid positive developments.

China’s December default rates hinge on Evergrande and Kaisa, according to Bloomberg Intelligence. They have a combined $171 million of interest payments that are still in 30-day grace periods which end in December. But developers’ recent, successful asset sales to state-owned enterprises sparked a positive reversal in the mark-to-market value of China high-yield bonds.

China’s Developers Face $12 Billion in Trust Payments This Month (7:15 a.m. HK)

Chinese developers are facing $12 billion in trust payments coming due in December, posing a major challenge for the sector whose liquidity squeeze has spooked global markets.

The firms have already this year defaulted on more than $10 billion of these high-yielding, short-term products, which had been deemed to be a legitimate, safe and predictable place to park money for mainly wealthy Chinese and institutions. That comes on top of at least $10.9 billion of potential losses in other wealth products at developers, including China Evergrande Group, which has angered employees and tens of thousand people across China.

Developers are struggling to stay afloat after Beijing pushed to rein in the industry following years of breakneck growth. A deepening contagion into the $3 trillion trust industry will add pressure on policy makers to ease the crunch in order to avert a more dramatic slowdown, with the real estate industry accounting for about 15% of the economy.

A look at Evergrande’s maturity schedule:

Dollar bonds Coupon due date Grace period ends Amount

(million dollars)

TIANHL 13% due 2022 Nov. 6 Dec. 6 41.93
TIANHL 13.75% due 2023 Nov. 6 Dec. 6 40.56
EVERRE 7.5% due 2023 Dec. 28 Jan. 27 50.43
EVERRE 8.75% due 2025 Dec. 28 Jan. 27 204.77

–With assistance from Kevin Kingsbury, Charlie Zhu, Emma Dong and Bei Hu.

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