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China’s Evergrande scrambles to avoid new default, Shimao hoists ‘for sale’ sign

The logo of China’s Evergrande Group appears at the real estate developer’s headquarters in Shenzhen, Guangdong Province, China, September 26, 2021. REUTERS/Ali Song

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  • Shimao put assets into the block, lowered ratings again
  • Evergrande extends deadline for bond repayment deferral
  • Next R&F is in focus with $750 million in debt to be paid off Thursday

HONG KONG/LONDON (Reuters) – China’s real estate sector saw more drama on Monday after reports Shimao – investment grade until two months ago – put all of its projects up for sale and Evergrande tried to avoid another rally. Default file.

More unwelcome surprises this month mean the Chinese real estate crisis that wiped out $1 trillion from the sector last year has not stopped.

Monday’s volatility saw Shimao Group’s credit rating downgraded again by both S&P and Moody’s after it unexpectedly defaulted on a “credit loan” last week, although its shares rose nearly 20% (0813.HK) on reports that they Talks about asset sales are underway with China’s state-backed giant Fanqi. Read more

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China Evergrande (3333.HK), the world’s most indebted company that first launched the unrest last year, said it was moving out of its Shenzhen headquarters to cut costs. Read more

The company kept a glimmer of hope alive that China’s first “internal” yuan bond default could be avoided by extending the deadline for bondholders to Thursday to agree to a six-month 4.5 billion yuan ($157 million) payment deferral. Read more

Chinese real estate companies have faced unprecedented pressure over the past six months after Beijing’s efforts to curb excessive borrowing in the sector.

Reuters reported last week that the government is now planning to make it easier for state-backed property developers to buy up competitors’ assets from the struggling private sector. Read more

But the sector’s monetary crunch is also expected to intensify with companies needing to make nearly $40 billion in international bond payments over the next six months according to brokerage Nomura, including nearly $1.5 billion this week alone.

One of the ones likely to be highlighted alongside Evergrande on Thursday will be Guangzhou R&F Properties (2777.HK). Its bonds fell to very distressing levels before paying off the $750 million in bonds maturing that day. It also has a number of unfinished mega projects in global cities such as London.

“I think the worst is yet to come,” said Himanshu Purwal, emerging markets corporate credit analyst at Seaport Global.

“A lot will depend on what the Chinese government does in terms of liquidity measures…but it’s already been four months so I don’t know what they are waiting for.”

China high yield crushed property collapse

new bottoms

Troubles in recent days have seen ICE’s high-yield debt index (.MERACYC), which is dominated by homebuilders, reach an all-time low, while Evergrande and fellow debt defaulters Kaisa have seen their bonds taken out of closely watched JP Morgan. . Corporate debt market index.

Both S&P and Moody’s lowered Shimao’s rating even deeper to junk category on Monday and warned of the possibility of another downgrade.

S&P, which ranked Shimao investment grade as recently as November, cut it a full two notches. “The decline is worse than we previously expected. We now assess the company’s liquidity as weak,” she said.

Moody’s and Fitch also downgraded Yuzhou Group (1628.HK) due to increased refinancing risk while Moody’s withdrew another company’s rating, Yanguo, due to “insufficient information”.

Separately, junior developer Modern Land (1107.HK), which missed repayment of its 12.85% bond maturing in October, said in a filing Monday that it had received notifications from some certificate holders demanding early repayment of their principal bonds.

The developer said it was discussing the exemption with those creditors and hired financial advisors to draft a plan. The company added that it was also in talks about a restructuring plan for its $1.3 billion overseas bonds.

Shares of Modern Land resumed trading after being suspended since October 21, and fell 40% in Hong Kong to HK$0.23.

“It will be the peak of the repayment period and we will see more developers defaulting,” said Kington Lin, managing director of Asset Management at Canfield Securities Limited.

“The market is watching how many SOEs (state-owned enterprises) will get more M&A loans to help developers in distress.”

Chinese real estate companies face big bills

(This story is being rewritten to add the dropped character in the first paragraph)

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(Additional reporting by Claire Jim and Donnie Cook in Hong Kong, Samuel Shen in Shanghai and Mark Jones in London.) ; Editing by Kim Coogle, Shri Navaratnam, Thomas Janowski and Cynthia Osterman

Our Standards: Thomson Reuters Trust Principles.

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