Defaults risks for other developers, PBOC on Evergrande

The fallout in China’s property sector is showing no signs of abating, as more developers face the threat of default — even as uncertainty over the fate of heavily indebted Evergrande looms.

All eyes will be on Chinese real estate developer Sinic Holdings, which warned last week that it’s not likely to repay offshore bonds worth $250 million due on Monday. There was still no word from the developer as of noon. CNBC has reached out to the company.

On Friday, another developer, China Properties Group, said it had defaulted on $226 million worth of notes, as it had failed to secure funds by the Oct. 15 maturity date.

They were not the first — Fantasia Holdings had failed to make a bond payment worth $206 million in early October.

Last week, ratings agencies issued a fresh round of downgrades for Chinese real estate companies.

This week, Evergrande will officially be in default if it doesn’t pay up for interest to a U.S.-dollar denominated offshore bond – the payment was due in late September but has a 30-day grace period. The company has kept silent on coupon payments on four other bonds that were due in the past few weeks.

These developments come as China’s central bank said Friday that the risks posed by Evergrande are “controllable,” and that most real estate businesses in the country are stable.

However, the People’s Bank of China also said property firms that have issued bonds overseas — referred to as offshore bonds — should actively fulfil their debt repayment obligations.

On Sunday, the central bank’s Governor Yi Gang made additional comments. He said authorities will try to prevent Evergrande’s problems from spreading to other real estate firms, according to Reuters.

He also said China’s economy was “doing well,” but faced challenges such as default risks from “mismanagement” at certain firms, the news agency reported.

China’s property developers have grown rapidly following years of excessive debt, prompting authorities to roll out the “three red lines” policy last year. That policy places a limit on debt in relation to a firm’s cash flows, assets and capital levels.

Things came to a head after the policy started to rein in developers. The world’s most indebted developer, Evergrande, warned twice last month it could default. 

It has since missed three interest payments for its U.S.-dollar bonds. The stock has been suspended since Oct. 4, and ratings agencies have downgraded other real estate firms on concerns about their cash flows.

Trading of Chinese real estate bonds spiked to over $1 billion so far in October, from over $600 million in August, according to data from electronic fixed income trading platform MarketAxess. Evergrande’s 8.75% bond maturing in 2025 is currently the second-highest most traded emerging market bond on its platform, it said.