S&P: A third of Chinese property companies face potential defaults from Evergrande contagion

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The debt crisis facing Chinese real estate giant Evergrande could lead to debt payment problems for a third of companies in the sector in the next twelve months, according to a new study.

A survey by the risk rating agency Standard & Poor’s points to the sales crash and the difficulties of access to credit among the setbacks currently facing the sector.

The agency’s analysts believe that even if Evergande – whose bankruptcy threatens not only the Chinese market, but also the international market – manages to meet its obligations, the next Friday and avoid a potentially disastrous default, many other players in the sector could end up in bankruptcy.

The report’s authors note that while China’s housing market is notorious for boom and bust cycles, “the current contagion-tinged recession is unusually intense“.

“Our scenario analysis shows that, in the most severe scenario, the liquidity up to a third of qualified Chinese developers will be under pressure“.

The agency mentions that $84 billion debt will mature in domestic and foreign bond markets over the next five quarters, while debt repayment has been hampered after regulators in the Asian country entered last year limits on the use of borrowed money.

“S&P believes that defaults will increase as companies enter a prolonged bear cycle, amid heightened rollover risk and steep maturity walls ahead this year and next,” the report concludes.

  • Evergrande, whose total debt is approximately 300 billion dollars, avoided last week incurring a suspension of payments during the transfer on Thursday 83.5 million dollars in a Citibank trust account for interest on a US dollar bond, with only one day remaining until the payment bond’s due date.
  • The most indebted real estate company in the world will face commitments to 47.5 million for October 29 and about 338 million in November and December.
  • Chinese authorities have urged billionaire Hui Ka Yan, founder of Evergrande, to use personal su riqueza to ease the company’s growing debt, Bloomberg reported this week, citing people familiar with the matter.
  • Evergrande, which saw its real estate sales drop 97% during the peak season, has yet to complete the homes of 1.6 million buyers who have already made deposits.
  • Meanwhile, several Chinese real estate companies such as Fantasia Holdings, Sinic Holdings, China Properties or Modern Land missed their debt payment deadlines.

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