China property market may see more pain, though Evergrande crisis may

BEIJING — Worries about Chinese real estate developers’ high debt levels have rattled investors despite signs that property giant China Evergrande may be making progress on resolving its debt problems.

It’s an indication of further pain to come in China’s property market, analysts told CNBC.

Since late summer, global investors have watched for Evergrande’s ability to stave off official default — and are concerned about whether the fallout might spread to the rest of China’s real estate industry.

Other major developers have also reported liquidity problems in the last several days.

Chinese property stocks trading in Hong Kong mostly fell last week. Evergrande was among the least affected and lost about 1.3% for the week.

On the debt front, the Markit iBoxx index for China real estate high yield bonds fell 11.5% last week, according to IHS Markit.

“The market is a bit more worried,” Gary Ng, Asia-Pacific economist at Natixis, said in a phone interview on Thursday. He pointed to how tighter government regulations on debt have restricted liquidity, which has spread to more developers.

“We still think the majority of this stress” will be on companies in the private sector and “on smaller developers and on the high-yield space,” Ng said. “State-owned developers, or the general investment grade [space], those seem quite stable.”

Only five of the twenty largest Chinese real estate developers by assets as of the first half of this year were central government-owned enterprises, according to Natixis.

The three developers that have caught investor attention recently do not fall in that state-owned category.

Evergrande is the industry’s biggest issuer of U.S. dollar-denominated high yield bonds, according to Natixis.

Kaisa Group Holdings, which ranks second among those high yield bond issuers, suspended trading in its Hong Kong-listed shares Friday before the stock market opened. Shares of the developer were already down nearly 13% for the week after news it missed payment on a wealth management product.

Another large Chinese developer, Shimao Group Holdings, traded about 14% lower Friday in Hong Kong. The company disclosed in a filing Thursday that it will only allow institutional investors to buy seven of its Shanghai-traded bonds, effective Friday. Existing retail investors must sell or hold the bonds until maturity, the filing said.

These developments come as investors are already on edge over the risk of default for other Chinese real estate companies.

Moody’s made 32 negative rating actions in the Chinese property sector in roughly the four weeks that ended Oct. 26.

The ratings agency noted in a report in late October that the rated developers will need to pay or refinance tens of billions of dollars’ worth of debt in the coming 12 months: $33.1 billion of…