Second Evergrande? ... Another Chinese Real Estate Developer Defaults on Bonds

[Image source=EPA Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Following the default crisis caused by Evergrande, China's second-largest real estate developer, due to unpaid bond interest, another real estate developer has also failed to repay bonds maturing on schedule. This has heightened concerns surrounding the Chinese real estate market.

On the 5th (local time), according to CNBC and The New York Times (NYT), Huayangnian, a developer specializing in luxury real estate, announced through a disclosure that it failed to repay bonds worth $206 million (approximately 242.8 billion KRW) that matured the previous day.

According to the company's first half financial statements, Huayangnian's total debt amounts to $12.8 billion (approximately 15.2 trillion KRW), which is relatively small compared to Evergrande's $300 billion.

However, as developers continue to default on bond repayments, investor sentiment toward the Chinese real estate market has turned cold, with some Chinese real estate stocks plunging more than 10% and yields on real estate developer bonds rising to their highest levels in about a decade, NYT reported.

When bond yields of Chinese real estate developers rise (bond prices fall), the cost for these companies to raise funds through bond issuance also increases.

International credit rating agencies are also continuing to downgrade Chinese real estate developers.

Fitch downgraded Huayangnian's credit rating from 'B' to 'CCC-' before the company announced the bond default. According to Fitch, a 'CCC-' rating indicates a substantial credit risk where default is a real possibility.

Standard & Poor's (S&P) also downgraded another Chinese real estate developer, Xinli, from 'CCC+' to 'CC', citing severe liquidity problems and near exhaustion of debt repayment capacity.

CNBC reported that since the Chinese real estate market accounts for 15% of China's Gross Domestic Product (GDP), concerns are growing about the ripple effects the Evergrande crisis could have on China's economic growth.

This content was produced with the assistance of AI translation services.