A spillover of the crisis at China Evergrande Group into other parts of the economy could become a systemic problem, warned Jenny Zeng from AllianceBernstein. Speaking with CNBC’s “Street Signs Asia” on Friday, the co-head of Asia fixed income at AllianceBernstein warned of a “domino effect” from a potential Evergrande collapse.
China is potentially facing their Lehman Brothers moment – and the consequences could be huge for Australian house prices. In a scenario where a protracted crisis unfolds within the Chinese property sector, the Australian property market and economy could end up feeling the heat. If Chinese investors who own Australian property are forced to liquidate their assets in order to cover bad debts, some suburbs with a high proportion of Chinese ownership could see a significant increase in the number of properties on the market. To put Evergrande’s immense size and importance to the Chinese economy into perspective, its debts amount to around $US315 billion ($A432 billion).That is more than three times the entire debt load of the New Zealand government and around two-thirds of all outstanding Australian federal debt. As Evergrande struggles to pay its creditors, mum and dad investors have stormed the company’s headquarters to demand their money back, after payments to retail investors were stopped. A sizable number of developers in the offshore dollar market appear to be “highly distressed” and may not survive much longer if the refinancing channel remains shut for a prolonged period.
China’s “highly distressed” real estate companies are at risk of collapse as the country’s highly indebted developer Evergrande is on the brink of default, warns AllianceBernstein’s Jenny Zeng.
“In the offshore dollar market, there is a considerable large portion of developers (who) are implied to be highly distressed,” Zeng said. These developers “can’t survive much longer” if the refinancing channel remains shut for a prolonged period, she added.
These developers may be small individually, but when combined, they make up about 10%-15% of the total market, she added.
Hong Kong’s Hang Seng index led losses among Asia-Pacific markets in Monday trade, with shares of embattled Chinese developer China Evergrande Group continuing to drop.
The Hang Seng index dropped 3.51% in Monday afternoon trade. Shares of China Evergrande Group in the city plummeted 14.17%.
Evergrande, the world’s most indebted property developer, is crumbling under the weight of more than $300 billion of debt and warned more than once it could default. Banks have reportedly declined to extend new loans to buyers of uncompleted Evergrande residential projects, while ratings agencies have repeatedly downgraded the firm, citing its liquidity crunch.
The financial position of the other Chinese property developers also took a hit following rules outlined by the Chinese government to rein in borrowing costs of the real estate firms. The measures included placing a cap on debt in relation to a company’s cash flows, assets and capital levels.
“Once it starts, it takes much more from a policy perspective to stop it than to prevent it from happening,” she added.
