- REUTERS - Andrew Galbraith and Marc Jones - OCT 13, 2021 -
Greenland and E-house suffer fresh rating downgrades
Kaisa Group's bonds slump to 35 cents on the dollar
Investment grade bond spreads rise as contagion spreads
SHANGHAI/LONDON, Oct 13 (Reuters) - The rumbling crisis at China Evergrande Group (3333.HK) and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday and triggered a fresh round of credit rating downgrades.
Evergrande, which has more than $300 billion in liabilities and 1,300 real estate projects in over 280 cities, missed a third round of interest payments on its international bonds this week, and other firms have also warned they could default.
Rating agency S&P Global delivered fresh downgrades to two of the sector's bigger firms, Greenland Holdings - which has built some of the world's tallest residential towers - and E-house, and warned it could cut their ratings further.
The $5 trillion property sector accounts for around a quarter of the Chinese economy by some metrics. In the clearest sign yet that global investors' worries are growing, the spread - or risk premium - on investment grade Chinese firms, which tend to have the most solid finances, jumped to its widest in more than two months.
The spread on the equivalent high-yield or 'junk'-rated index (.MERACYC) that the likes of Evergrande are part of surged to a new all-time high of 2,337 basis points. That drove the yield - which reflects how much firms would have to pay to borrow - to an eyewatering 24%.
"We see a risk that a disorderly correction in the property market could cause sharp price declines, hitting the personal wealth of homeowners," Kim Eng Tan, a credit analyst at S&P Ratings, said in a report.
"Such an event could also contribute to large-scale losses by investors in wealth management products, and the contractors and service firms that support the developers."
Evergrande did not pay nearly $150 million worth of coupons on three bonds due on Monday, following two other missed payments in September.
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