The rating agency S&P Global It gave new downgrades to two of the largest firms in the industry, Greenland Holdings – which has built some of the tallest residential towers in the world – and E-house, and warned it could lower its ratings further.
The real estate – which amounts to 5 trillion dollars – represents about a quarter of the Chinese economy according to some metrics. In the clearest sign yet that global investor concerns are growing, the spread – or risk premium – on investment-grade Chinese companies, which tend to have the strongest finances, jumped to its broadest level. in more than two months.
The spread on the equivalent high yield or “junk” rated index of which Evergrande is a part touched a new all-time high of 2,337 basis points. That brought the return – which reflects how much businesses would have to pay to borrow – to a surprising 24%.
“We see the risk that a disorderly correction in the real estate market could cause sharp price falls, affecting the personal assets of the owners“Kim Eng Tan, a credit analyst at S&P Ratings, said in a report.
“Such an event could also contribute to large-scale losses by investors in wealth management products and the contractors and service companies that support developers,” he added.
Evergrande failed to pay about $ 150 million in coupons for three bonds that were due Monday, after two more defaults in September. Although the company has not technically defaulted on those payments, which have 30-day grace periods, investors say they expect a long and drawn-out debt restructuring process.
Bonds issued by developers such as Shanghai Shimao Co Ltd, China Aoyuan Group and Country Garden Properties Group fell between 1.6% and 7.4%, according to commercial data, while Kaisa Group – the first Chinese real estate company to fall in default in 2015 – he was watching some of his dollar-denominated bonds decline to as low as 35 cents, taking his yields to nearly 60%.
Kaisa has $ 3.2 billion in international bonds to pay out next year, just behind Evergrande’s $ 3.5 billion. A sub-index that tracks A-shares of real estate was down 0.7%, compared with a rise of 1.2% in the CSI300 index of outstanding Chinese stocks.
“We continue to be underweight real estate for our China equity portfolios“said Virginie Maisonneuve of Allianz Global Investors.” We have no plans to add in the short term, “he said, although he added that Beijing should be able to contain the problems.
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