By Scott Murdoch and Tom Westbrook

HONG KONG (Reuters) – As uncertainty looms over cash-strapped China Evergrande Group, seizing up China’s junk bond market, pressure is building on its peers to access fresh funding to repay notes worth nearly $300 billion due over the next two years.

Evergrande, once the country’s top selling developer, is now one of China’s biggest-ever restructurings. This comes after a crackdown against debt ended a freewheeling period of borrowing money that was infamous for creating ghost towns and roads to nowhere.

Evergrande could default on its dollar bond, if it does not pay the interest by Thursday. This would mean that the property sector which makes up a quarter the country’s gross national product, will suffer.[L1N2QP048]

As a result of the nervousness, a few Chinese real estate developers have seen their ratings lowered by rating agencies. They are worried about how they will repay their debts, and this could impact their ability to borrow.

As Evergrande’s fate remains unclear, debt bankers stated that few businesses are interested in borrowing from the market at this time, while Evergrande’s fate is still unknown, so any company who does need to approach the market will likely have to make a payment.

Michel Lowy (CEO of SC Lowy Asset Management Group) stated that debt is currently being re-priced, and that some developers might be excluded. He stated that while “not all sectors” were being repririced but that investors will be more selective about the developers they fund.

Evergrande’s $305billion debt load has caused global investors to be on alert. This led them to fear that the debt-payment obligations could cause systemic problems for China’s financial systems.

Chinese property developer bonds generally yield between 4% to 12% depending on credit ratings and the strength of their balance. However, recent deals were at the higher end of this range.

Redsun Properties Group Ltd., for instance, raised $210,000,000 in May, with a coupon rate of 7.3%. On Monday, it issued a $200 Million bond at a 9.5% coupon.

A high-yield index of Chinese debt is in decline for several months, even though global credit has rallied. Evergrande worries have swarmed the markets.

According to Dealogic data, $32 billion in bonds issued by Chinese developers will be refinanced before major transactions end in 2022.

Nearly $125 billion worth of developer debt – led by Evergrande which has five of the top ten biggest maturations worth nearly $6.3 billion – is due next year, the Dealogic figures showed. In 2023, another $140.7 million will mature.

These figures are inclusive of both offshore and onshore bonds that were issued in dollars or yuan by Chinese developers.

A Hong Kong-based debt banker said that if there was a deal, it would prompt a major response of “Well, there must be a premium”. He could not identify himself as he wasn’t authorized to talk to media.

While no one has ever paid Evergrande’s premium over the last week, they will be by the end. It will be interesting to watch how this goes.

MONEY WILL FIND A WAY

China’s markets reopened on Wednesday after holidays but were quiet in the lead up to what is usually a busy period in October when firms have finalised their quarterly balance sheets and tend to look to tap markets.

As regulatory barriers to capital access increase, some Chinese property developers started asset sales.

Guangzhou R&F Properties Co, which according to Fitch has $1.9 billion in debt maturing within 12 months, has already turned elsewhere – raising as much as $2.5 billion by selling a subsidiary and taking loans from its biggest shareholders.

Others are struggling, with shares in Sinic Holdings (Group) cratering almost 90% before being suspended from trade on Monday, after a Fitch outlook downgrade that has since been followed by a ratings cut to CCC+ by S&P on Tuesday.

Sinic has failed to communicate a clear repayment plan, S&P Global (NYSE:) Ratings said.

Redsun and R&F declined to comment on Thursday and Sinic did not immediately respond to a request for comment.

Jonathan Leitch of Hogan Lovells, a partner in the firm, said that while I don’t believe the doors to capital markets will shut completely for Chinese property developers it is only a matter when and who will need money.

Although there might be some premiums for certain issuers, the global market is full of liquidity that will allow money to flow to such companies.