China’s Evergrande is fighting to avoid new standard, Shimao hoists the ‘for sale’ sign

The logo of the China Evergrande Group is seen at the property developer’s headquarters in Shenzhen, Guangdong Province, China, September 26, 2021. REUTERS / Aly Song

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  • Shimao puts assets on the block, ratings cut back again
  • Evergrande extends the deadline for deferring bond payment
  • R&F next time in focus with DKK 750 million USD debt payment on Thursday

HONG KONG / LONDON, January 10 (Reuters) – China’s real estate sector experienced more drama on Monday after reports that Shimao – rated for investment quality until a few months ago – had put all its projects up for sale and Evergrande tried to avoid another high-profile standard.

Several unwelcome surprises this month have meant that the Chinese property crisis, which wiped out over a trillion dollars of the sector last year, was not let go.

Monday’s twists caused Shimao Group’s credit rating to cut back on both S&P and Moody’s after the company unexpectedly defaulted on a “trust loan” last week, even though its shares rose nearly 20% (0813.HK) on reports, it was in negotiations on asset sales with the state-sponsored giant China Vanke. Read more

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China Evergrande (3333.HK), the world’s most indebted developer who first triggered the unrest last year, said it had moved out of its Shenzhen headquarters to reduce costs. Read more

The company kept a glimmer of hope alive that its first “onshore” Chinese yuan bond default could still be avoided by extending a deadline for bondholders to accept a six-month 4.5 billion yuan ($ 157 million) payment deferral until Thursday. Read more

Chinese real estate companies have come under unprecedented pressure over the past six months following Beijing’s efforts to curb over-lending in the sector.

Reuters reported last week that the government now plans to make it easier for state-subsidized real estate developers to buy assets from struggling private rivals. Read more

But the sector’s cash crunch is also expected to intensify with companies having to pay nearly $ 40 billion in international bond payments over the next six months, according to brokerage firm Nomura, including nearly $ 1.5 billion this week alone.

One of those likely to be highlighted along with Evergrande on Thursday will be Guangzhou R&F Properties (2777.HK). Its bonds have fallen to deeply distressed levels ahead of a $ 750 million bond payment due that day. It also has a number of unfinished mega projects in global cities like London.

“I think the worst may not have come yet,” said Himanshu Porwal, corporate credit analyst at new markets at Seaport Global.

“A lot will depend on what the Chinese government does in terms of liquidity targets … But four months have already passed, so I do not know what they would wait for.”

China’s high yield crushed by property collapse


The misery of recent days has seen ICE’s Chinese high-yield debt index (.MERACYC), which is dominated by homebuilders, hit a record low, while Evergrande and other defaulters Kaisa have seen their bonds thrown out of JP Morgan’s closely followed emerging market corporate debt index.

S&P and Moody’s both cut Shimao’s rating deeper into the junk category on Monday, warning of the potential for a further downgrade.

S&P, which had rated Shimao as an investment grade as late as November, cut it by a full two notches. It said: “The decline is worse than we had previously anticipated. We now assess that the company’s liquidity is weak.”

Moody’s and Fitch also downgraded the Yuzhou Group (1628.HK) due to increased refinancing risk, while Moody’s withdrew the rating of another company, Yango, due to “insufficient information.”

Separate, small developer Modern Land (1107.HK), which missed payment for its 12.85% banknotes due in October, said in an filing on Monday that it has received notifications from certain note holders demanding early repayment of their senior notes.

The developer said it has discussed a waiver with these creditors and has appointed financial advisers to formulate a plan. It is also in negotiations for a $ 1.3 billion restructuring plan for its offshore bonds, the company added.

Modern Land shares, which resumed trading after being suspended since October 21, fell 40% in Hong Kong to 0.23 HKD.

“It will be the peak of the payback period and we will see more developers default,” said Kington Lin, chief financial officer of Canfield Securities Limited.

“The market is keeping an eye on how many SOEs (state-owned companies) will get more M&A loans to help developers in need.”

Chinese real estate companies are facing big bills

(This story is included to add a missed letter in the first paragraph)

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Reporting by Clare Jim and Donny Kwok in Hong Kong, Samuel Shen in Shanghai and Marc Jones in London; ; Edited by Kim Coghill, Shri Navaratnam, Tomasz Janowski and Cynthia Osterman

Our standards: Thomson Reuters trust principles.


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