China Developers Slump Most Since December as Evergrande Weighs

Chinese property stocks tumbled the most in nine months as concern over a possible China Evergrande Group liquidation added to fresh signs of stress across the industry.

A Bloomberg Intelligence gauge of developer shares fell 7.1% Monday، taking its loss in valuation this year to almost $56 billion. Evergrande، which scrapped key creditor meetings at the last minute and said it must revisit its restructuring plan، dived 22%. China Aoyuan Group Ltd. was the biggest drag on the index، slumping by a record 72% after shares resumed trading following an 18-month halt. 

Market sentiment has taken a turn for the worse following a recent stream of negative news. Last week، China’s securities regulator said it launched an inquiry into Ping An Real Estate Co. over an undisclosed overdue loan payment. China Oceanwide Holdings Ltd. on Monday disclosed it is facing liquidation after a Bermuda court issued a winding-up order. Worries are also growing that Country Garden Holdings Co. may suffer an imminent default. 

Further pain from the ailing sector

Investors are bracing for further pain from the ailing sector، with a policy-driven bounce since late August fading quickly. The selloff comes at a crucial time for developers، which have been pinning their hopes on a home sale revival ahead of the Golden Week holiday period that starts Friday. The September to October time-frame tends to be one of the busiest seasons for homebuying، and news of Evergrande’s challenges risk weighing on already tepid demand.

“This change in debt restructuring plan may further cloud the future of this debt-laden company،” said Willer Chen، senior research analyst at Forsyth Barr Asia Ltd.، referring to Evergrande. “For the remaining surviving developers، the market is focusing more on their property sales recovery and policy support،” he added. 

Officials are rushing to stem the spillover from China’s property turmoil. Fears are mounting that the years-long crisis will next hit the nation’s commercial banks and keep home prices under pressure، further hurting consumer confidence. With the country being the world’s biggest consumer of iron ore، the sector’s downturn has already hurt the commodity market as construction companies pulled back from restocking before the holiday.

Relatively healthier balance sheet

The malaise also threatens to dampen sentiment among developers with relatively healthier balance sheets. Just last week، Moody’s Investors Service put two of China’s few investment-grade developers on review for possible downgrade. The ratings firm noted high uncertainty over their credit metrics recovery and future prospects. 

The sector’s woes weighed on the broader stock market Monday. The CSI 300 Index fell 0.7%، while the Hang Seng gauge of Chinese shares slumped 2.1%. 

Chinese property junk dollar notes، most of which are in deeply distressed levels at below 15 cents، were largely unchanged on Monday. China’s high-yield bond index، mainly composed of the country’s developers، dropped 0.25 cents last week، the first decline this month. 

Ping An Real Estate، an investment-grade issuer، suffered the most among builders on Monday، with its 2.75% note due 2024 falling by a record 5.8-cents to 73.8 cents as of 2:50 p.m. in Hong Kong، according to Bloomberg-compiled data.