Home » Technology » The “breaking point” is approaching. China’s Evergrande has not paid interest again, there is a risk of a domino effect

The “breaking point” is approaching. China’s Evergrande has not paid interest again, there is a risk of a domino effect

Indebted Chinese real estate company Evergrande did not pay interest on bonds in the amount of $ 148 million (CZK 3.2 billion). This is the third time in the last three weeks that the company has missed an interest payment. There are growing fears in the markets that its difficulties will spread to other companies in the real estate sector and then to other sectors, Reuters reported.

Indebted Chinese real estate company Evergrande did not pay interest on bonds in the amount of $ 148 million (CZK 3.2 billion). This is the third time in the last three weeks that the company has missed an interest payment. There are growing fears in the markets that its difficulties will spread to other companies in the real estate sector and then to other sectors, Reuters reported.

Some creditors said they had not received interest on bonds due in April 2022, April 2023 and April 2024. They were supposed to have the money in their accounts no later than 06:00 CEST. The company has not yet commented on this, it missed two payments in September.

This means that investors face significantly higher losses when the 30-day protection period now available to Evergrande expires. The company owes more than $ 300 billion (CZK 6.6 trillion) and other due liabilities are approaching.

Refinitiv records show that Chinese developers will have to repay bonds totaling $ 101.2 billion next year. “We expect further outstanding liabilities if the liquidity problem does not improve significantly,” said the brokerage company CGS-CIMB. According to her, developers with a lower rating are having difficulty refinancing at the moment.

Evergrande is the most indebted real estate company in the world, warns the Financial Times. The company owns over 1,300 development projects in more than 280 Chinese cities.

Another Chinese developer, China Modern Land, is now trying to extend the maturity of its liabilities. The company said on Monday that it needed to postpone the maturity of short-term bonds in the amount of $ 250 million by three months. In recent weeks, attention has also turned to Sunac China Holdings, which has alerted the regional government that the real estate sector is on the verge of a “turning point.”

Although investors around the world are noticing mainly unpaid interest on dollar bonds issued by Chinese real estate companies, indicators of market developments show that fears of the spread of the disease and the slowdown in economic growth are growing. According to traders, however, the sale concerns rather riskier bonds.

“The market is now trading more rationally. More in terms of differences in the quality and rating of individual companies than the whole sector would face a sell-off,” said Michael Wong, head of CP Securities in Hong Kong.

However, the cost of insuring the risk that China will not pay its obligations to creditors continues to rise. The price of five-year credit swaps, which investors most often use for these purposes, rose to 59 basis points. This is the maximum since last April. So if someone wants to fully insure a $ 10 million investment in Chinese government bonds, their annual insurance will cost him $ 59,000. That is 0.59 percent of the amount invested.

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