(Bloomberg) — This week’s surprise default by a small Chinese developer suggests the industry’s fundraising difficulties may be “more severe than expected,” analysts at Goldman Sachs Group Inc. warned.
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Fantasia Holdings Group Co.’s failure to repay a $205.7 million bond by Monday — which prompted a series of rating downgrades to levels signifying default — is leading investors to question whether other developers are in similar positions, the analysts wrote in a note.
Chinese Estates Holdings Ltd. surged as much as 32% in Hong Kong after the billionaire Lau family offered to take their investment firm private. Chinese Estates are long-time backers of China Evergrande Group but have recently pared their stake.
Shares of Chinese Estates had been halted since Sept. 29. Investors are still waiting for Evergrande to disclose details of its “major transaction.” The developer needs to update the market by 1 p.m. in Hong Kong for its shares to resume trading Thursday afternoon. Two of its listed subsidiaries rose, having tumbled in recent weeks amid investor concern Evergrande will need to dispose of its stakes quickly.
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Goldman Warns on Funding After Fantasia Default (11:30 a.m. HK)
Developers’ funding stresses may worsen further and refinancing concerns could become a broader issue as next year approaches, Goldman analysts led by Kenneth Ho wrote. Citigroup Inc. analysts agree, writing earlier this month that China’s government is under pressure to address the credit crisis facing indebted developers before January, when bond repayments are set to spike.
Citigroup estimates 15 of the country’s most stressed property developers will have $5.2 billion due at the beginning of the year. Most of those are principal payments on dollar bonds rather than interest or coupons, adding to the urgency. The total is more than double the amount due in October, a month that’s already seeing companies struggle to make good on debt.
Chinese Estates, Evergrande Units Rise (9:30 a.m. HK)
Shares of Chinese Estates rose to as high as HK$3.80 apiece, below the take-private offer price of HK$4. The family of billionaire Joseph Lau — a long-time backer of Evergrande — offered to buy the 25% stake it doesn’t already own in Chinese Estates. The stock recently plunged to an 18-year low.
China Evergrande New Energy Vehicle Group Ltd., the volatile electric-vehicle unit majority owned by Evergrande, rose as much as 17% Thursday. HengTen Networks Group Ltd., in which Evergrande owns a 26.55% stake, added as much as 11%.
Still No Disclosure (8 a.m. HK)
Evergrande had yet to disclose details of its “major transaction” as of Thursday morning. That means the stock, and that of its property services unit, will remain suspended until at least 1 p.m., according to Hong Kong exchange rules. But trading halts in Hong Kong can last weeks or even months, as there is no specific time limit set by the exchange.
Evergrande’s shares last traded on Sept. 30. Hopson Development Holdings Ltd. plans to acquire a 51% stake in Evergrande Property Services Group Ltd., Chinese media platform Cailian reported earlier this week, citing unidentified people.
Southbound Buying of Evergrande (6 a.m. HK)
Mainland-based investors have been buying shares of Chinese real estate firms in Hong Kong through exchange links, according to Bloomberg Intelligence, with Evergrande and its property services unit topping inflows before their suspension. The southbound connect reopens Friday after a week-long holiday in China.
“The southbound buying may be driven by bargain hunting and hope that developers’ debt crises will be resolved in an orderly manner,” according to Bloomberg Intelligence analyst Marvin Chen. Chinese investors purchased more than 300 million shares in Evergrande and its property services arm.
Blinken Says China Needs to Act Responsibly (11 a.m. NY)
Secretary of State Antony Blinken says the U.S. wants China to act “responsibly” when it comes to addressing the impact of Evergrande’s debt crisis. Blinken’s comments are the first remarks by a top Biden administration official on the distressed real estate developer as China works to ringfence the economic fallout.
Blinken said in an interview with Bloomberg Television in Paris that the U.S. is counting on China to act responsibly on economic issues because of the potentially wider impact.
Evergrande dollar bond interest deadlines:
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