"Concerns Over Lehman Crisis"... China's Default Risk Spreads to Financial Sector

Following Biguiyuan Bonds, Wonyang Group Suspends Promissory Note Transactions

The debt default crisis triggered by Country Garden, a major Chinese real estate developer, is spreading to the Chinese financial sector. Foreign media have expressed concerns that this could escalate into a 'Lehman Brothers crisis' originating from China.

Bigu Yi Yuan Logo [Image source=Yonhap News]

On the 14th, foreign and Chinese media reported that trading of a total of 11 Country Garden-related bonds has been suspended starting today. These include nine Country Garden corporate bonds, among them six yuan-denominated corporate bonds issued from 2021 to last year, one private placement bond, and one corporate bond from Country Garden affiliate Guangdong Tengwei Construction Company.

The total bond amount is 15.72 billion yuan (approximately 2.87 trillion KRW). Among these, the earliest maturity is the Country Garden private placement bond due on the 2nd of next month. Depending on the bond type, maturities will occur throughout next month, on October 19, at the end of this year, and early next year.

Country Garden failed to pay interest of 22.5 million USD (about 30 billion KRW) on two bonds with a face value of 1 billion USD that matured on the 7th. It also announced losses of up to 7.6 billion USD (about 10.1 trillion KRW) in the first half of this year.

The company stated in a press release that it plans to hold meetings with creditors to discuss future repayment plans and will take measures to protect investors' rights.

However, on the first day of trading suspension, the company's stock price on the Hong Kong Stock Exchange plunged sharply, falling 16.32% compared to the previous session at 3 p.m. local time.

Additionally, another major real estate developer, Sino-Ocean Group, also failed to repay a 6% interest note of 20.94 million USD (about 27.9 billion KRW) maturing in 2024, resulting in a trading suspension.

The characteristic of this crisis is that not only specific companies but the entire Chinese real estate market is facing difficulties. The Hong Kong South China Morning Post (SCMP) reported that as Country Garden faces a default crisis, other real estate developers are also being pushed into trouble.

Not only these companies but also the Chinese financial sector is experiencing difficulties. Chinese media reported that Zhongrong International Trust, a representative Chinese real estate trust company, has delayed cash payments on matured products for three Shanghai Stock Exchange-listed companies: Jinbo Holdings, Nandu Properties, and Xianheng International.

Hong Kong Ming Pao and others reported that Zhongrong Trust's payment delay is related to the liquidity crisis of its major shareholder, asset management company Zhongzhi Group. This group manages assets totaling 1 trillion yuan (about 182 trillion KRW).

Although the companies affected by Zhongrong Trust are Jinbo and two others, the total amount of cash payments Zhongrong Trust intends to delay reaches 350 billion yuan (about 64 trillion KRW), raising fears of a China-originated Lehman Brothers crisis, according to Chinese economic media Caixin citing sources.

Foreign media also view the suspension of Country Garden's bond trading and related events as having a negative impact on the overall Chinese economy. Bloomberg News pointed out on the same day, "China's economic recovery is being pressured by a worsening real estate downturn," and "the latest data suggest there is little sign of a growth rebound."

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