Embattled conglomerate Evergrande rattled global markets in September by warning it could default on its huge debts. Since then, more developers have made similar public confessions, unnerving investors and raising fears of contagion across the vast sector.
It’s unclear how the crisis will be resolved. The companies could try to restructure their debts and work things out with their lenders. They could also seek bailouts from the Chinese government, but so far Beijing has said little on the issue besides promising to protect homebuyers.
The final — and worst — option would be a disorderly series of defaults, which would send shock waves across China’s economy, and perhaps beyond.
Four developers have already run into trouble as China’s once red-hot real estate industry cools rapidly.
The crisis started last month with Evergrande’s warning, which sparked fears about which banks and investors across the world might be exposed to its debt mountain. Since then, very little has been resolved.
With total liabilities of some $300 billion, including $20 billion in international bonds, Evergrande is China’s most indebted real estate company. At the end of September, Evergrande raised $1.5 billion in cash by selling part of its stake in a Chinese bank.
This week, the company reportedly failed to meet a deadline to pay $148 million in interest on bonds denominated in US dollars. It was the third such payment the conglomerate appears to have missed in recent weeks.
A failed payment commonly leads to a grace period, 30 days in this case, but time is fast running out — the default clock started ticking on September 23.
Evergrande’s stock is down some 80% this year, and its market value has collapsed to just 39 billion Hong Kong dollars ($5 billion). It hasn’t traded since last week, when shares were suspended following reports that a rival developer wanted to buy Evergrande’s proprerty management business.
Luxury apartment developer Fantasia Holdings is teetering on the brink. The Shenzhen-based company failed to pay $315 million owed to lenders last week, comprising a $206 million bond repayment and a 700 million yuan ($109 million) loan from the property management unit of Country Garden, China’s second largest developer.
Fantasia said that it would probably “default on [its] external debts,” according to Country Garden.
Ratings agencies S&P and Moody’s slapped “default” credit ratings on Fantasia and said the non-payment of principal would likely also put the company in default on its remaining bonds.
Shares in the company, which has a market value of 3.2 billion Hong Kong dollars ($420 million), are down nearly 60% this year.
Beijing-based developer Modern Land is also struggling to pay up on time. On Monday, the company asked investors for extra time to repay a $250 million bond that is due on October 25.
While Modern Land appeals for breathing space to sort out its finances, Chairman Zhang Lei and President Zhang Peng are dipping into their own pockets to support the business. They said they would lend the company 800 million yuan ($124 million).
Modern Land’s stock has fallen nearly 50% this year, cutting its market value to 1.2 billion Hong Kong dollars ($160 million).
Homebuilder Sinic Holdings is the latest to join the ranks of struggling developers, saying on Monday that it would likely default on some of its bond payments worth $250 million.
The principal and interest on those bonds are due October 18.
Last week, ratings agency Fitch downgraded Sinic’s rating to “C”, just one notch above “restrictive default,” which describes a company that has failed to pay but has not yet begun a formal process of bankruptcy or liquidation.
Sinic’s stock has suffered the most of the four developers this year, down nearly 90%. The company’s market value now stands at 1.8 billion Hong Kong dollars ($230 million).
— Jill Disis, Laura He and Michelle Toh contributed to this report.