China’s bond markets slump again as new Evergrande deadline passes By

By Andrew Galbraith and Marc Jones

SHANGHAI/LONDON (Reuters) – Chinese property firms’ bonds were hit with another wrecking ball on Monday as Evergrande looked set to miss its third round of bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.

High-yield Chinese bond markets were being routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment.

Some of China Evergrande Group’s offshore bondholders had not received interest payment by a Monday deadline Asia time, two people familiar with the matter said.

Once China’s largest developer, the firm has more than $300 billion in liabilities that are now at risk.

Other signs of stress included smaller rival Modern Land asking investors to push back by three months a $250 million bond payment due on Oct. 25 in part “to avoid any potential payment default.”

Modern Land’s April 2023 bond with a coupon of 9.8% plunged more than 25% to 32.25 cents on the day, according to financial data provider Duration Finance, while the company’s shares fell more than 2%.

Kaisa Group, which was the first Chinese property developer to default back in 2015, also saw some of its bonds slump to less than half their face value, while R&F Properties and Greenland Holdings, which both have prestige projects in global cities like London, were also widely sold.

“It’s a disastrous day,” said Clarence Tam, fixed income portfolio manager at Avenue Asset Management in Hong Kong, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds.

“We think it’s driven by global fund outflow …. Fundamentally, we are worried the mortgage management onshore hits the developers’ cash flow hard,” he added, referring to concerns people could stop putting deposits down on new homes.

Analysts at JPMorgan (NYSE:) also highlighted how international investors were now demanding the highest ever premium to buy or hold ‘junk’-rated Chinese debt.

There is now a whopping 1,200 basis point difference between the bank’s closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as “onshore” bonds.

The option-adjusted spread on the ICE (NYSE:) BofA Asian Dollar High Yield Corporate China Issuers Index is also at its widest ever.

“Evergrande’s contagion risk is now spreading across other issuers and sectors,” JPMorgan’s analysts said.

TRADING ADJUSTMENT

In equity markets, the Property and Construction sub-index fell 0.4% against a nearly 2% rise in the broader index.

Fantasia Group China Co, whose controlling shareholder is Fantasia Holdings, said on Monday it would adjust the trading mechanism of its…