Evergrande drowning in dire straits; drags China’s property sector

Investor sentiments were dampened because of apprehensions over increasing debt defaults by Chinese property developers all while in the thick of China Evergrande Group’s plummeting credit rating. And it is not without reason as Evergrande is neck-deep in its $300 billion debt. It had been reported that the company had skipped making coupon payments on two dollar bond branches.

Seeing a potential collapse of one of China’s biggest borrowers, the property sector broods on contagion risks that might impact the property sector.

On Monday, Evergrande called for a standstill in shares trading alongside the expectation of a major deal which was echoed through the same measure Evergrande Property Services Group had proposed. Evergrande has since refused to comment on the deal’s nature.

To date, Sinic Holdings, a well-known Chinese developer, had been downgraded by Fitch Ratings and S&P Global Ratings. In a statement, S&P had been quoted saying that it had encountered a “severe liquidity problem and its debt-servicing ability has almost been depleted”. The authority went on to add that the company will probably default on its notes on October 18th. Sinic kept mum on the matter.

Regarding Evergrande’s hurdle, Thomas Kwok, head of equity business at Hong Kong brokerage CHIEF Securities had this to say:

“Since the Evergrande crisis, investors have become more worried and focused about Chinese developer’s repayment ability,”

He added that there had been an increase in liquidity issues due to the non-issue of fresh debt to refinance by numerous developers and their apparent weakening ability to raise cash from selling properties because of new regulations. Kwok further stated:

“This will be a vicious cycle for the developers that are not strong enough, because there is not enough liquidity in the market for everyone.”