Chinese real estate developers have grown at breakneck speed over the past decade, fueled by massive amounts of debt. The authorities have started to curb them with strict debt limits, but breaking a dependency is not easy.
Evergrande is one of China’s largest real estate developers and one of the most indebted companies in the world, with more than $ 300 billion. It creaks under the pressure and has recently failed to make numerous offshore bond payments.
Just before a 30-day grace period expired, Evergrande wired $ 83.5 million Thursday to pay interest on an offshore dollar bond. But it faces longer deadlines for missed bond payments, with $ 45.2 million in interest owed later in October. If Evergrande fails to spit, he will officially be in default.
The Evergrande crisis is now spreading to other developers and threatens to disrupt the Chinese real estate sector, which economists say accounts for around 30% of the economy.
Perhaps the most disturbing flaw to date has been midsize developer Fantasia. Earlier this month, he failed to pay a $ 206 million bond due Oct. 4, according to a filing.
The default was troubling because the company had reassured investors just two weeks earlier that there was no liquidity problem, said Craig Botham, chief economist for China at Pantheon Macroeconomics.
“A large number of Chinese developers are in more fragile positions than their balance sheets suggest,” he said.
Fantasia is smaller than Evergrande, with 2019 revenue of $ 2.76 billion, compared to Evergrande’s $ 69.15 billion, according to Bloomberg data.
Sinic Holdings defaulted on a bond and interest payments worth $ 250 million on Monday, Bloomberg reported. It is another mid-sized real estate developer with a turnover of $ 3.91 billion in 2019.
Stress related to Evergrande has slowed sales in the real estate sector and pushed up borrowing costs, adding to the pressure on developers like Sinic.
The yield on riskier Chinese dollar bonds – which are important sources of funding for developers – soared to 20% earlier this month.
Fitch Ratings downgraded Sinic to “narrow default” on Thursday.
China Property Group
China Properties Group is considerably smaller than Sinic, but it is also struggling. He said on Oct. 15 that he defaulted on bonds worth $ 226 million in a filing on the Hong Kong Stock Exchange.
There will likely be little respite for developers this year, according to UBS. Bank analysts said in a note Monday that they expected new properties to start falling 20% year-on-year in the fourth quarter, “putting further downward pressure on the economy.”
Earlier in October, Modern Land asked to defer payment of a three-month, $ 250 million bond until January, saying it wants to take action to “avoid any potential default.”
Still, the midsize developer, who owns 200 apartment and office buildings across China, scrapped those plans on Wednesday night. He said in a filing that he was facing cash flow issues and was looking to hire financial advisers.
The president and chairman of Modern Land said they would inject around $ 123 million into the business.
Pressure on Xinyuan led him to swap $ 208 million worth of dollar bonds for two-year debt, as part of a distressed debt swap.
On Wednesday, rating agency Fitch gave Xinyuan a “CC” rating, which means some sort of default is likely. Fitch said the midsize developer is facing a “tight liquidity situation, with limited access to financing and large offshore bond maturities over the next twelve months.”
Groupe Holding Greenland
Earlier this month, S&P Global Ratings downgraded Greenland, a huge developer with revenues of $ 61.98 billion in 2019. It got a “B +”, which means it is currently in able to pay his debts but is vulnerable to a shock.
Greenland is struggling as its borrowing costs skyrocket during the Evergrande crisis, with domestic and foreign investors now much less inclined to lend to real estate companies.
“The company’s cash flow may continue to run out over the next 12 months due to declining sales and fundraising,” S&P said.
Insider has contacted all of the real estate developers mentioned in this article for comment, but none have responded.