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Evergrande Debacle Hits Chinese Property Bonds And Shares

Evergrande Debacle Hits Chinese Property Bonds And Shares
Since there has so far been a little clue about how local authorities and regulators plan to prevent a contagion that could ensue after a possible collapse of the cash-strapped and heavily indebted China Evergrande, there was a slump on Friday of Chinese property developers' bonds and shares.
Evergrande has to make almost $150 million in offshore payment obligations next week.
The total debt on the shoulders of Evergrande is more than $300 billion and the second-largest real estate company of China has already twice failed to coupon payments on dollar bonds in September.
Following Evergrande missing payments worth a combined $131 million last month, a call will be held between some of the offshore bondholders of the real estate company on Friday, said reports quoting sources. 
"At this point, the call is basically to get a group of bondholders together so they can negotiate better," said reports quoting the sources. "Everyone's trying to get any information available, so they can start planning their next move," the source reportedly added.
According to reports quoting sources, law firm Mayer Brown as counsel has been hired by Evergrande dollar-bond trustee Citi. There has however been no comment available on the issue from Citi and Mayer Brown.
Earlier, investment bank Moelis & Co and law firm Kirkland & Ellis were selected as advisers by a group of bondholders for the possible restructuring of a cache of bonds, said reports last month. 
Worries about contagion risks to the entire property sector of the second-largest economy of the world have surfaced because of the possibility of the collapse of one of China's biggest borrowers. Many of the peer of Evergrande with large debts have been downgraded and many face potential defaults on repayments.
Offshore bonds issued by property firms such as Kaisa Group, Central China Real Estate, and Greenland were severely hit because of the uncertainty during the week-long National Day break of China that ended on Friday.
Trading in Evergrande’s shares has been suspended after the company requested a trading halt on Monday.  
Trading of two bonds issued by smaller developer Fantasia Group China Co was suspended by the Shanghai Stock Exchange on Friday. One of the bonds tumbled by more than 50 per cent following missing of the deadline on a $206 million international market debt payment on Monday by controlling shareholder Fantasia Holdings Group.
"Typically, a default by a small firm will be viewed as idiosyncratic. However, given tight liquidity for many Chinese developers now, market participants are questioning if this may be a precursor for voluntary defaults by other developers with healthy short-term liquidity positions, but large unsustainable longer-term debt," Chang Wei Liang, Credit & FX Strategist at DBS Bank, said in a note.
Its operations were normal, Fantasia Group said in a statement on Thursday evening and added that it remained in close contact with its investors. It was "actively promoting debt service protection measures," it also said.

Christopher J. Mitchell

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