China’s debt-loaded property market is headed for a reckoning, as China Evergrande Group and another troubled housing developer face deadlines for millions of dollars worth of payments in a test of Beijing’s narrative that it can handle the threat to the Chinese economy.
Evergrande, with bills totaling $300 billion or more, will need to come up with more than $82 million in cash by the end of Monday in the United States to fend off creditors. The developer said late last week that it was unable to make a separate payment worth $260 million, an indication investors took to mean the beginning of its eventual demise. Its shares tumbled by 20 percent on Monday in Asia.
The other developer in distress, Kaisa Group, must pay bondholders $400 million on Tuesday after it said it failed last week to get approval from investors to renegotiate the terms.
China’s property sector has kept global markets on edge for months, as developers have struggled to find cash to pay their soaring debts. They have been hampered by slowing demand from home buyers, falling property prices in many Chinese cities and Beijing’s crackdown on excessive bank lending.
Chinese property developers have $1.3 billion in U.S. dollar bond payments due this month. By April, that number will jump to $17 billion, according to an estimate by Goldman Sachs.
If Evergrande and Kaisa miss their payments, China’s leaders could find themselves in a difficult position. They risk destabilizing the property market and the financial system if big companies suddenly collapse. But if they step in to help, they could send a message that they will come to the rescue of property companies that built up mountains of debt.
“The regulators are now between a rock and a hard place,” said Larry Hu, the chief China economist at the Macquarie Group
“If they blink, more excessive risk-taking will definitely come in the future,” he added. “If they don’t, the property downturn would inflict more pain on the economy.”
Chinese leaders have a broad array of tools at their disposal to stop a panic, including their tight grip on the banking and finance sectors, and their ability to silence shocking headlines in the news media. Still, the authorities are taking extra steps to stem the damage.
On Monday, Chinese banking regulators loosened the amount of money banks are required to stash away for a rainy day, giving them greater ability to lend amid the property woes …….