A banner promoting the Emerald Bay residential project outside the China Evergrande Centre in Hong Kong
Problems at Evergrande have thrown the spotlight on the ability of other highly leveraged developers to refinance as liquidity conditions tighten in China © Lam Yik/Bloomberg

Trading in China Evergrande bonds was suspended for the second time in days on Tuesday and rating agency Moody’s downgraded the property developer for a third time since June, sending jitters through the country’s real estate debt market.

The bonds were suspended temporarily after falling more than 20 per cent in Shenzhen, according to a statement from the city’s stock exchange that echoed a similar intervention on Friday.

The volatility came as a rapidly unfolding liquidity crisis at the world’s most indebted property developer added to fears over the wider Chinese sector’s battle to deleverage.

The bonds of Guangzhou R&F, another Chinese property developer, edged lower in Shanghai on Tuesday to about 60 per cent of their face value, following falls of more than 20 per cent a day earlier. Moody’s had also downgraded the group’s credit rating and warned over its ability to refinance.

Fantasia Group, a third property company facing refinancing concerns, said in a statement to the Hong Kong stock exchange on Monday evening that it had made several purchases of its own bonds, one of which matures in December. Its bonds sank to 78 cents on the dollar.

Refinancing worries across the sector have grown following a sustained sell-off in the debt and equity of Evergrande, which last week warned about the risk of default.

Shares in Evergrande were down as much as 8.5 per cent in Hong Kong on Tuesday.

As well as choppy trading on international markets, where they are some of Asia’s biggest high-yield borrowers, Chinese property developers are also grappling with tighter credit conditions and weaker sales within China. Beijing introduced rules last year to constrain developers’ leverage.

“Overall, the funding conditions have tightened and the offshore bond market is also getting more volatile,” said Kaven Tsang, a senior vice-president at Moody’s.

“That actually has some negative implications on the market as a whole,” he added. “The refinancing risk has increased.”

The issues facing Evergrande, which has rushed to dispose of assets to raise cash to pay off its debts, have already helped push up yields across China’s high-yield market. Average yields rose to 13 per cent in late August compared with less than 10 per cent in June, according to an index from ICE and Bank of America.

In language reminiscent of Evergrande’s challenges, Moody’s late last week estimated that Guangzhou R&F did not have enough cash to cover its debt repayments in the next year and a half, meaning it would need to rely on “new financing or asset sales”.

Fantasia said in the filing that the purchases of its own bonds would “reduce the company’s future financial expenses and lower its financial gearing level”. 

In a separate filing late on Friday, it said the bonds had also been bought through companies wholly owned by Fantasia’s founder Zeng Jie, niece of Zeng Qinghong, a former vice-president of China.

Additional reporting by Hudson Lockett in Hong Kong

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