The largest Chinese developer Evergrande recently attracts increased attention of stock market participants. Investors sell shares in anticipation of default on debts of a heavily indebted developer, the amount of debts which exceeds 300 billion dollars.
Evergrande shares on the Hong Kong Stock Exchange declined for most of the year., accelerated the fall in the summer and eventually fell in price with 14,9 to 2,64 Hong Kong Dollar, having lost about half of the value over the past month.
At the same time, the company reported, that it is becoming increasingly difficult for them to repay their debts, as in the summer sales decreased by 88%.
Rice. 1. Schedule changes in the value of Evergrande Group shares. A source: investing.com Ris. 1. Evergrande Group Share Price Change Chart. A source: investing.com
29 Evergrande should list more 47,5 million dollars. on bonds maturing in 2024 r. If interest is not paid within 30 days after the scheduled date, on release can be declared default.
According to Bloomberg sources, some banks are awaiting Evergrande's offers on payment extension plans. Total to the end 2021 r. the company must repay 669 million dollars. debts, and most of them fall on dollar bonds.
At the same time, the Western media note, that Evergrande is one of the largest developers in China. Hence, the collapse of the company can spread to world markets.
How will the situation with Evergrande affect other market participants?
Due to the impending collapse of Evergrande, four other Chinese developers - Fantasia, China South City Holdings, Guangzhou R&F and Xinyuan Real Estate Co are also in a difficult position. Their bonds similarly collapsed due to fears of foreign investors..
"These concerns have further limited the ability of these companies to issue new bonds., to refinance expiring bonds and pay current investors", WolfStreet notes..
Since the beginning of the year, developers have already defaulted on the debt on 6 USD billion, which is about five times more, than in the previous twelve months. Among them is China Fortune Land Development Co with its almost 10 billion dollars. outstanding debt, including 4,6 billion dollars. on dollar bonds. In March, the company defaulted on bonds on 550 million dollars.
Last month, Ping An Insurance Co. reported the write-off of its investments from the developer on 5,5 billion dollars.
Developers VS GDP
Previously, developers were an important factor in Chinese economic growth.. They account for 28% Gdp. And a lot of that was financed by debt., including dollar debt, most of which is now crumbling.
"Foreign investors have been actively investing in the real estate sector for many years., buying bonds for hundreds of billions of dollars, including dollar bonds, produced by Chinese developers. They liked the yield of these securities., which in some cases was more than 10%, and they thought, that the Chinese authorities will not allow these companies to default, will save bondholders, as it used to be, after all, the real estate sector is very important for the Chinese economy.", WolfStreet analysts said..
However, now everything has gone wrong for foreign investors.. Chinese authorities began to apply measures to overloaded developers with debt, actively stepping on liquidity inflows to the housing sector.
If the Chinese government refuses to help bondholders and allows investors, especially foreign, to suffer serious losses for the sake of reducing debt in the economy, it will be a fundamental change for all, who invests in Chinese real estate.