The China Evergrande Centre building sign is seen in Hong Kong. Picture: REUTERS/TYRONE SIUJust three months after narrowly avoiding collapse, the world’s most indebted developer China Evergrande Group is teetering on the brink again and investors are still unclear how much or for how long the problems could reverberate.
At a time of slowing property sales in China, a disorderly Evergrande default could accelerate financial stress across the property sector, said Logan Wright, director of China markets research for consultant Rhodium Group.“Right now there is very little clarity on the potential sources of this financing, even if there is more confidence that authorities will respond with some resolution to limit financial contagion,” Wright said.
Liqian Ren, a WisdomTree director who follows China, expects Evergrande to default. Still, she pointed to Friday’s central bank statement, and other official statements like it, pledging Evergrande was an individual issue and long-term funding functions would not suffer. China's central bank has pumped 1.2-trillion yuan into the banking system, its second such move since July, and the regional government where Evergrande is based has said it is now stepping in.Since October’s dodge, a clutch of Evergrande’s smaller rivals have either gone under or restructured. Kaisa, China's first property default back in 2015 which has over $3bn of debt to refinance next year, is also in serious strife.
In the meantime, the damage inside the country continues. China real estate HY bonds have suffered their worst year on record, losing more than a third of their value on average, while Evergrande, Kaisa and defaulters like Fantasia are down at least 80%.
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