Chinese real estate market in dire straits

All is not well with China’s economy. Cash-strapped Chinese developers are scrambling to negotiate new terms with their bondholders to avoid defaults, with Yuzhou Group and the Shimao Group being the latest case in point of Chinese developers seeking extensions on their maturing debt.

The market is also watching the outcome of China Evergrande Group’s meeting with onshore bondholders, as the voting period to approve an extension is slated to end later today.

For foreign financial firms what is of concern is that the Chinese group has paid some of its onshore bonds but chose to default on offshore bonds.

Struggling with more than $300 billion in liabilities, the China Evergrande Group, is the world’s most indebted property company; it is now seeking a six-month delay in the redemption and coupon payments of a $157 million (4.5 billion-yuan) bond.

Of note to foreign financial firms investing in China is the fact, that Chinese developers, who are facing a tight liquidity squeeze have largely settled onshore debt payments while choosing to default on offshore debt repayments.

These offshore debt defaults has led the World Bank to say a severe and prolonged downturn in the Chinese real estate sector would have significant economy-wide reverberations in many parts of the world, since the developers’ combined onshore and offshore liabilities amount to almost 30% of China’s GDP.

The World Bank also warned of risks and potential costs of contagion from a sharp deleveraging of China’s large property firms.

Yuzhou Group and the Shimao Group are not the only Chinese real estate developers in his quagmire. According to analysts’ estimates the sector’s cash crunch could intensify with firms needing to meet onshore and offshore maturities totalling around 210 billion yuan each in the first and second quarter, up from 191 billion yuan in the fourth quarter of 2021.

Chinese developers are desperately raising funds to repay debt.

Sunac China Holdings Ltd, a major player in the Chinese real estate market, said on Thursday, it would raise $580.1 million from a share sale.

According to Chinese media report, citing company registry records, shares worth 110 million yuan in a few companies held by Sunac have been frozen by a Shenzhen court.

Responding to those reports Sunac said, the freeze was caused by a “minor dispute” between the firm and its partners, but the parties have come to a reconciliation and are resolving to unfreeze the shares.

Shares of Chinese developers were generally down on Thursday, with Sunac falling by 19% while shares of Shimao fell by 7.6% while those of Yuzhou shed 7%. Evergrande’s shares dropped by 3%.

One of Yuzhou’s yuan-denominated bonds tumbled 21.8% in the morning before it was ordered to temporarily halt trading.

($1 = 6.3610 Chinese yuan)

Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy, Sustainability

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