'Liquidity Crisis and Poor Sales' Sharp Drop in Bond Prices of Chinese Real Estate Companies

[Photo by Reuters-Yonhap News]

[Asia Economy Reporter Park Byung-hee] The Wall Street Journal (WSJ) reported on the 6th (local time) that the prices of dollar bonds issued by Chinese real estate developers have fallen sharply due to a series of liquidity crises among these companies.

The liquidity crisis of Evergrande Group, China's second-largest real estate developer, has caused anxiety in the Chinese real estate market, leading bondholders of real estate developers to sell off bonds in large quantities. Following Evergrande Group, another specialized real estate developer, Huayangnian (Fantasia), announced on the 4th that it failed to repay bonds worth $206 million (approximately 242.8 billion KRW) that matured, further spreading concerns.

Accordingly, WSJ reported that on the 6th, the prices of bonds issued by dozens of Chinese real estate developers plunged in the Hong Kong market.

According to bond information provider Tradeweb, the bond price of China’s real estate developer Kaisha Group, which matures in April next year, fell to about 73% of face value in the Hong Kong market on that day. It was trading at over 86% of face value at the beginning of the previous day, but the price plummeted within a day.

The ICE Bank of America (BoA) index, which shows the yield trend of Chinese corporate junk-grade bonds, soared to 17.6%, marking the highest level in the past 10 years. Bond yields move inversely to bond prices.

Jenny Jung, co-head of the Asia-Pacific bond division and portfolio manager at Allianz Bernstein, explained, "Half of the junk-grade Chinese real estate developer bonds have yields exceeding 20%, reflecting the high default risk of these companies."

As sales in the Chinese housing market also slump, the liquidity crisis of Chinese real estate companies is becoming more severe. General consumers are reluctant to purchase homes due to fears that, like Evergrande Group, homes may not be completed. Kaisha Group announced that its sales in September were 5.7 billion yuan, down 28% from August. Typically, September to October is the peak season for the real estate market, but sales declined as investment sentiment froze.

CCB International predicted in a report dated the 4th that real estate sales in September this year could record the worst performance in 20 years.

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