When times were flush for the property developer China Fortune Land, it bought a trophy soccer club and recruited star athletes from Argentina. These days, the players with the club, Hebei F.C., are on indefinite leave because it can’t afford to keep the lights on.
The developer is one of a growing number facing financial strain in China, challenging the narrative from Beijing that it can keep the country’s corporate debt crisis under control while avoiding the disorderly collapse of its property giants.
Global markets just weeks ago were fretting over the possible failure of China Evergrande Group, the world’s most indebted property developer. Central bankers and financial figures considered the impact that its more than $300 billion of unpaid debts would have on China’s economy if Beijing stuck to its commitment not to provide a bailout.
The tumult at Evergrande appeared to die down more recently after the company made payments on multimillion-dollar bonds. But its financial woes have already set off a broader panic that has contributed to a wave of defaults among other developers. And their troubles are mounting.
Money is becoming harder to find because the cost of borrowing has soared, fewer people are buying apartments and the value of property is falling. Property companies have $40 billion of payments to make to foreign investors alone over the next two months, according to one estimate.
Kaisa Group, China’s first developer to default on overseas debt six years ago, told investors last week that it was facing “unprecedented pressure.” The stress to Chinese developers is so intense that the United States Federal Reserve flagged it as a potential risk to the American economy in a report this week.
As Chinese real estate developers fail to meet their most basic financial obligations, experts are warning that Evergrande’s problems have already started to have a dangerous spillover effect. Evergrande and Beijing are managing the company’s struggles under a veil of secrecy, allowing it to meet some payment deadlines without explaining how.
The approach may stem panic, but it papers over broader pressures on the sector and an economy that has long turned to the property market to help power its growth.
“The fundamental situation for Evergrande hasn’t really changed,” said Matthew Chow, a China property analyst and director at S&P Global Ratings. “We remain sure that default is almost a certainty.”
Another potentially devastating deadline for Evergrande approaches …….