China Can ‘Contain’ Risks; Yields May Fall: Evergrande Update

(Bloomberg) -- Risks posed to the Chinese economy by China Evergrande Group’s debt crisis can be contained, according to the central bank, which has stepped up its commentary amid further evidence of economic headwinds stemming from the fallout. 

The property firm’s trouble “casts a little bit of concern,” People’s Bank of China Governor Yi Gang said at a virtual meeting of the Group of 30 on Sunday. “Overall, we can contain the Evergrande risk.” His comments came after the central bank last week broke its silence on the crisis, saying risks were controllable and unlikely to spread. 

Tighter restrictions on the property market have curbed construction activity and squeezed financing to the sector, weighing on growth. Home sales by value tumbled 16.9% in September from a year earlier, following a 19.7% drop in August, according to Bloomberg calculations based on National Bureau of Statistics data released Monday. Property stocks on the mainland dropped on the report.

Fears of contagion risks have intensified after a surprise default by Fantasia Holdings Group Co. and a warning from Sinic Holdings Group Co. that its default was imminent. Chinese yields are likely to decline over the next couple of years due to slowing growth and anticipated easing from the People’s Bank, according to Capital Economics’ Oliver Allen.

Amid signs of authorities’ growing unease, China is loosening restrictions on home loans at some of its largest banks, according to people familiar with the matter. Such action could be seen to help reduce bearishness in the debt market -- prices on the nation’s dollar junk bonds rose about 3 cents on the dollar Monday, according to credit traders. That follows Friday’s gains. 

Evergrande’s onshore real estate unit is scheduled to pay yuan bond interest due Tuesday. 

Key Developments:

• China Home Sales Plunge 17% as Evergrande Crisis Deters Buyers
• China Channels Bernanke With Assurances Evergrande Is Contained
• Evergrande Warning Was Aimed at Fantasia, Too: Shuli Ren
• China Breaks Silence on Evergrande, Says Risks Controllable 
• China Eases Mortgages for Rest of Year Amid Evergrande Woes 
• Evergrande Unit Is Scheduled to Pay Yuan Bond Interest Due Tues.
• Hong Kong Regulator Starts Probe of China Evergrande Accounting
• China Evergrande’s Hui Pledges 500 Million Shares as Security
• Yuexiu Pulls Out of Purchase of Evergrande HK Building: Reuters
• What Is China Evergrande and Why Has Trouble Spread?: QuickTake

China’s Yields May Fall in 2022 on Slower Growth (2:10 p.m. NY)

While Chinese yields have recently climbed, they are likely to decline over the next couple of years due to slowing growth and anticipated easing from the People’s Bank, according to Capital Economics’ Oliver Allen.

“We forecast that the 10-year government bond yield in China will slip from just over 3% at present to 2.5% by the end of next year,” Allen wrote in a research note Monday. 

While Capital Economics doesn’t expect “widespread contagion to China’s financial system from events surrounding Evergrande, we do think its economy will remain very weak, as construction activity slows substantially, and a shift in global consumption patterns weighs on demand for its exports,” Allen wrote.

Moody’s Cuts Guangzhou R&F, Kaisa, Greenland (5:37 p.m. HK)

Moody’s Investors Service cut the corporate family rating of Guangzhou R&F Properties Co. to B3 from B2. It also lowred R&F Properties HK Company’s rating to Caa1 from B3. 

The decision on Guangzhou R&F reflected the company’s weak liquidity and high refinancing risks based on debt maturing over the next 6-12 months and its weakened access to offshore funding, Moody’s said.

Earlier, the ratings company reduced the corporate family rating of Kaisa Group Holdings Ltd. to B2 from B1 on expectation that the firm’s liquidity will weaken and as refinancing risks increase. Separately, it cut Greenland Holding Group Co. to Ba2 from Ba1 and placed the corporate family rating of China Aoyuan Group Ltd. on review for downgrade.

China Channels Bernanke With its Assurances (1:06 p.m. HK)

For months in the runup to the 2008 financial crisis, banking heavyweights from Federal Reserve Chair Ben Bernanke on down said the turmoil in subprime mortgages would be “contained.”

That phrase is now making a comeback in Beijing as regulators try to reassure markets that the world’s second-largest economy can weather the crisis at China Evergrande Group. Investors are hoping Chinese policy makers prove more adept at ringfencing the damage than their Wall Street counterparts were. Still, signs of a spillover into the economy are hard to ignore.

Jiangsu Construction Credit Rating Cut on Evergrande Exposure (12:58 p.m. HK)

Jiangsu Construction Engineering Group’s credit rating was cut to A from AA- by China Chengxin International Credit Rating, which cited non-payment risks stemming from its biggest client China Evergrande.

China Properties Says No Payment Made on Senior Notes (12:18 p.m. HK)

China Properties Group said it did not make payment on its 15% notes due Oct. 15, adding that the non-payment constitutes a default.

China Junk Dollar Bonds Rebound Further (10:18 a.m. HK)

The price of Chinese high-yield dollar bonds rallied further Monday following Friday’s gains. Such notes jumped about 3 cents on the dollar in Monday’s opening, according to credit traders.

Home Sales Plunge 17% as Crisis Deters Buyers (10:14 a.m. HK)

China’s economy slowed in the third quarter. A residential property slump dragged on last month, as home sales by value tumbled 16.9% in September from a year earlier, according to Bloomberg calculations based on National Bureau of Statistics data released Monday.

The sales slump may fuel a vicious cycle by worsening the cash shortage at developers and forcing them to offer bigger discounts. That in turn could reduce home prices in a country where people keep a large chunk of their wealth in real estate. 

Citi Sees ‘Bumpy’ Credit Rebound in 2022 (9:37 a.m. HK)

Citigroup’s credit analysts say that the outlook for China’s credit market will improve as the government takes action to ease pressure, but traders will have to be patient. Any rebound for high-yield debt is unlikely to happen in the fourth quarter as “investors are reluctant to get involved,” according to a recent note.  

“A longer term approach, out into 2022, gives a more positive result,” wrote the analysts led by Eric Ollom. Investment-grade companies, which are mainly state-owned enterprises or other “high quality” issuers, appears oversold, they wrote

China to Sell $4 Billion of Dollar Bonds, Least Since 2018 (8:30 a.m. HK)

China will sell global dollar bonds for the fifth straight year, a deal that’s attracting more scrutiny after Evergrande’s crisis roiled the offshore debt market in recent months. 

The Ministry of Finance plans to raise $4 billion from the offering in Hong Kong on Tuesday, a third less than the $6 billion in each of the past two years and the least since 2018, according to Bloomberg-compiled data. 

PBOC’s Yi Says China Can ‘Contain’ the Risk From Evergrande (8:30 a.m. HK)

People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the Evergrande’s struggles. He was speaking at a virtual meeting of the Group of 30 on Sunday.

Evergrande dollar bond interest deadlines:

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