Evergrande’s deadline brings chills to the $ 400 billion Asian bond market

What’s New in Evergrande Real Estate Group

Growing concerns over the Evergrande have ignited sales in the $ 428 billion corner of the Asian bond market, with traders and investors preparing for a key payment deadline on Thursday in China. It emphasizes how the real estate developer crisis is spreading to other assets.

Yields on US dollar-denominated bonds issued by high-risk Asian borrowers surged to nearly 12% this week, according to the Ice Data Services index. This is the highest level since the early soaring coronavirus pandemic.

The impact from 7% at the beginning of the year is as follows Traders are frets Beyond the potential fallout if Evergrande begins to miss payments of billions of dollars of outstanding debt in the international market.

If interest is not paid on one of the offshore dollar bonds on Thursday, China Largest debt restructuring ever.. It also presents the most serious shock to date across markets where international asset managers have been fascinated by favorable returns as global bond yields approach historically low levels.

The Evergrande crisis was partly the result of Beijing’s widespread crackdown on borrowing by Chinese real estate developers, the leading issuers of dollar-denominated high-yield bonds in Asia.

The developer liquidity crisis represents the latest surge in regulatory risk that global investors must address when investing in the world’s largest emerging markets. Unprecedented curb About the national technology and education sector.

Stephen Jen, head of fixed income at London-based Eurizon, said: “This is the culmination of all these amazing regulatory measures on the market.”

Another major international fund manager in London said this week was flooded with inquiries about exposure to the Evergrande Group.

With approximately $ 20 billion in dollar-denominated debt, the company faces $ 83.5 million in interest payable on Thursday. At the time of its latest submission in June, Emerging Markets Specialist Ashmore was the largest single-holder with a $ 63 million stake and was another large investor as of July. Includes UBS and HSBC.. This month, a group of Evergrande offshore investors hired law firm Kirkland & Ellis and investment bank Moelis to advise on the potential for restructuring.

A 5-year bond issued in 2017 with a regular “coupon” payment of 8.25% Evergrande chair Hoikayan Crowned by the wealthiest man in China, it sold out rapidly. It is trading at 25 cents in dollars, a very distressing level compared to near par in early June. If you miss a payment, Evergrande has a 30-day grace period before the official default.

on Wednesday, Evergrande said Interest payments of RMB232 million ($ 35.9 million) to be paid on-shore bonds also on Thursday were “resolved through off-exchange negotiations”, but it is not clear when or how much to pay. rice field.

Developers have been trying to stop the rapidly evolving liquidity crisis for months, but suppliers, creditors, Falling individual investors Last week at the Shenzhen headquarters.

Yields on Chinese real estate developers have skyrocketed in recent weeks as the seriousness of Evergrande’s cash crunch has become apparent, but yields on the Ice index have risen 2 percentage points this month alone. Real estate occupies 42% of the market and most of the borrowing comes from China.

A bar graph of% of total value in Ice BofA's high yield dollar bond index shows that properties occupy the largest share of the Asian high yield bond market.

Paul Lucazevsky, Head of Corporate Debt for the Asia Pacific region of Aberdeen Standard Investments, said: He estimated that current prices suggest that about 30% of Chinese high-yield issuers rated B, a level considered high risk, will default.

According to JP Morgan data, the overall high-yield market for Asian companies has more than doubled from just $ 169 billion in 2014. Most of the investment comes from Asia, but well-known international funds also play a major role in the market. This is one of the most direct routes of offshore investment in China’s tightly controlled financial system.

“Funds around the world are making huge investments in this sector because of their high yields,” said one Hong Kong-based banker. Evergrande was “always a name that many people find very unpleasant”, but some investors “need exposure” because it is included in the global fixed income index, and fund manager performance is reassessed. He added that it is a benchmark that will be used.

The HSBC and BlackRock-managed funds purchased Evergrande bonds in July and August, respectively, and increased their holdings this year as the fund expanded.

Chinese Real estate crackdown Evergrande’s predicament has been in the limelight and pressure has increased over the years. In 2018, the government stated that the proceeds from offshore borrowing should be used to refinance existing debt rather than invest.

Line chart of yields (%) showing that global bond yields are fixed near record lows

There is a risk of refinancing Attack other developers With dollar debt, including the Fantasia Group downgraded last week and Guangzhou R & F. The inability to refinance can also raise economic concerns across China if new home construction is sluggish.

In addition to high yields, investors are also attracted to Chinese assets because of their perception that they have weak ties to Chinese assets. Lukaszewski suggested that the appeal of the Asian high-yield market as a whole is that it “advancees to its own beat, which is a local factor.”

Jen added: “Imagine sitting in London, something happened in the US and everyone in China is panicking about what’s happening now … Meanwhile, American investors are very calm. . Think about this contrast .. .. Which party is right? “

Additional report by Attracta Mooney in London

Evergrande’s deadline brings chills to the $ 400 billion Asian bond market

Source link Evergrande’s deadline brings chills to the $ 400 billion Asian bond market

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