Chinese developer Sinic defaults as Evergrande deadline looms

Chinese developer Sinic defaults as Evergrande deadline looms

Chinese developer Sinic defaults as Evergrande deadline looms

Sinic Holdings has added to a growing list of defaults across China’s contracting real estate sector as markets are braced for a deadline this weekend for developer Evergrande to settle interest payments on its offshore bonds.

Hong Kong-listed Sinic defaulted on $246m of bonds that were due to mature on Monday, based on Bloomberg data, in line with a warning last week and adding to a $206m default from luxury developer Fantasia Holdings this month.

Borrowing costs on Asia’s bond market for riskier corporate issuers soared in the weeks after Evergrande, the world’s most indebted property developer, missed the bond payments in late September and ignited fears globally over a slowdown in China’s real estate sector.

Official figures released on Tuesday, accompanying disappointing gross domestic product data a day earlier, showed real estate output was up 8.2 per cent in the first nine months of this year but down 1.6 per cent in the third quarter year on year, its first contraction in any quarter since the start of the pandemic.

Evergrande’s initial failure to pay interest on its dollar-denominated debt on September 23, on which it has yet to make any public announcement, triggered a 30-day grace period that ends on Saturday and could result in a formal default. Advisers to bondholders have complained of a lack of “meaningful engagement” from the company.

Evergrande also had an interest payment due on Tuesday on an onshore bond and had previously said in a statement that it would make the payment. Reuters reported on Tuesday that the payment had been made.

China’s central bank on Friday weighed in on the Evergrande situation for the first time, with a People’s Bank of China official blaming the company for its issues and saying the spillover to the financial system was “controllable”.

Evergrande, which was engulfed by a rapidly unfolding liquidity crisis over the summer, has come to embody wider challenges across China’s property sector. Property contributes more than a quarter of GDP but has faced difficulties after companies came under government pressure to reduce their leverage.

In addition to Sinic’s default, a slew of recent downgrades from international rating agencies has highlighted the difficulties facing the sector at a time when data also show sales of new homes are slowing sharply year on year and high borrowing costs are making refinancing expensive.

Fitch last week downloaded the rating on developer Modern Land (China) to C. The developer had earlier in the month moved to extend the maturity of bonds maturing next week. The US rating agency said it “considers the consent solicitation to be necessary for Modern Land to avoid default given tight liquidity”.

S&P on Friday downgraded residential developer China Aoyuan because the rating agency expected “its deleveraging pace to slow amid a tough operating environment”.

Yields on some developers with payments due this week, such as Kaisa Group and Sunac, fell amid reports that the companies would make coupon payments.

Reporting by Thomas Hale, Wang Xueqiao and William Langley