China central bank says Evergrande debt woes are manageable
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[October 15, 2021] By
Andrew Galbraith
SHANGHAI (Reuters) -The spillover effect of
China Evergrande Group's debt problems on the banking system is
controllable, a central bank official said on Friday, in rare official
comments on a liquidity crisis at the massive developer that has roiled
global markets.
Chinese authorities are urging Evergrande to step up asset disposals and
the resumption of projects, Zou Lan, head of financial markets at the
People's Bank of China (PBOC), told a briefing, adding that individual
financial institutions did not have highly concentrated exposure to
Evergrande.
"In recent years, this company did not operate and manage itself well.
It failed to conduct prudent operations according to changing market
conditions, and it blindly diversified and expanded its business," Zou
told the briefing in Beijing.
Chinese officials and state media have been largely silent on the crisis
at Evergrande, which has missed a series of bond interest payments and
has $300 billion in debt, making it the the world's most indebted
developer.
Another Chinese developer, Xinyuan Real Estate Co's, avoided a default
on a maturing dollar bond on Friday, saying in a Singapore Exchange
filing that bondholders had agreed to an offer to accept new bonds and
cash in exchange for maturing notes.
Xinyuan said that holders of more than 90% of the company's $229 million
notes due Oct. 15 had agreed to the exchange, which would see it deliver
new bonds worth $205.4 million and $19.1 million cash.
Xinyuan's 14.5% September 2023 bond crashed nearly 30% on Friday to
trade at 58.35 cents, according to data provider Duration Finance.
The agreement follows warnings from other developers that they could
default on their bonds, while still others have taken steps to delay
payments in the wake of Evergrande's troubles.
Evergrande, China's No.2 developer with 1,300 real estate projects in
moer than 280 cities, missed a third round of interest payments on its
international bonds this week.
PBOC URGES SPEEDY ASSET SALES
At the Friday briefing, Zou said Evergrande should step up asset
disposals and the resumption of project building, for which authorities
will provide financing support.
Some lenders have had “misunderstandings" about the central bank’s debt
control policies, causing financial strains for some developers, as some
new projects were unable to get loans even after repaying existing
loans, Zou said.
"This short-term extreme reaction is a normal market phenomenon,” he
said.
Chinese developers face more than $500 million in coupon payments on
their high-yield bonds before the end of this month. Refinitiv data show
coupon payments by Kaisa Group Holdings and Fantasia Holdings are due
this weekend.
"In some cities, the property prices surged too fast, causing the
approval and issuance of personal mortgages to be restrained," Zou said,
referring to the first three quarters of this year.
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The logo of China Evergrande is seen at outside China Evergrande
Centre building in Hong Kong, China September 23, 2021.
REUTERS/Tyrone Siu/File Photo
"Once housing prices stabilise, the supply and demand of mortgages in those
cities will be normalized too," he said.
FRESH SETBACKS
Still, Evergrande suffered fresh setbacks on Friday with sources telling Reuters
that Chinese state-owned Yuexiu Property pulled out of a proposed $1.7 billion
deal to buy the company's Hong Kong headquarters building over worries about the
developer's dire financial situation.
Evergrande has been scrambling to divest some assets to repay creditors knocking
on its doors, and has missed three rounds of interest payments on its
international bonds, and the collapse of the talks shows the difficulties it is
facing.
Adding to its woes, Hong Kong's audit regulator said on Friday it was
investigating Evergrande's 2020 accounts and their audit by PwC because it had
concerns about the adequacy of reporting on whether it could continue operating
as a going concern.
Evergrande bonds fell following the Reuters report. The company's 8.75% June
2025 bonds slumped more than 6% to trade at a discount of more than 80% from its
face value, according to data provider Duration Finance.
BOND SLUMP DEEPENS
Apart from Xinyuan, Duration Finance data showed other developers' bonds
deepening their rout on Friday. Sinic Holdings Group's 10.5% June 2022 bond
dived more than 20% to just 12.25 cents, and Ronshine China Holdings' February
2022 bond fell more than 6% to 68.35 cents.
Spreads on Chinese high-yield corporate dollar bonds touched a fresh record late
Thursday evening U.S. time, having nearly tripled since late May, while
investment-grade spreads remained near their widest in more than two months.
Worries of contagion have also hit property developers' shares this week. On
Friday, an index tracking A-shares in the sector gave up small gains to end down
0.1%, lagging a 0.38% gain in the blue-chip index and taking losses since
Tuesday to 4.5%.
China has been ramping up property market curbs since late 2020, introducing new
measures to closely monitor and control developers' debt levels.
But with economic growth cooling and new construction starts slowing,
speculation has been rife over whether it will start relaxing those
restrictions, as was the case during previous downturns.[ECILT/CN]
(Reporting by Andrew Galbraith, Cheng Leng,Kevin Yao and Tony Munroe, additional
reporting by Alun John; Editing by Kim Coghill, Jacqueline Wong and Nick Macfie)
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