(Bloomberg). China Evergrande Group will face its most difficult test Wednesday. It has $148.1 Million of coupon payments on three-dollar bonds due. Meanwhile, the wider junk bond market rallied following a report by China that may help developers sell their debt.

In other developments, Evergrande’s electric-vehicle unit sold shares at a deep discount, and Fantasia Holdings Group Co. plunged as much as 52% in Hong Kong following a six-week halt after the company’s surprise default. 

The Securities Times report on debt issuance rules sparked what would be the biggest jump in three weeks for China’s junk-rated dollar bonds. Some of the bonds issued by higher quality issuers, such as Country Garden Holdings Co. CIFI Holdings Group Co., saw increases in excess of 4 cents. Before Wednesday’s rally, a Bloomberg index for China’s high-yield market had dropped 13 of the last 14 trading days, putting yields at 24.6%.

The Key Developments

• Fantasia Plunges 50% After Month-Long Trading Halt
• Evergrande’s EV Unit to Raise HK$500 Million in Share Sale
• Evergrande: China Property Investment At Risk
• China Developer Kaisa Digs Deeper into Junk, Deadlines Loom 
• Shimao Group Holdings Cut to Junk by S&P; Outlook Negative
• China Bond Selling Spreads to Banks and High-Grade Tencent 
• China Property Stress – Fed Alerts Bond Losses to Widen 
• Shimao Verifies Unit-Transferred Funds to Pay Bond Interest

China Fallen Angel: Shimao Reduces to Junk (2:30 p.m. HK).

Major Chinese property developer Shimao Group Holdings Ltd. lost its investment-grade rating at S&P Global (NYSE:) Ratings, adding to concerns about a spate of downgrades amid a property industry debt crisis that’s already pushed some firms’ borrowing costs to decade highs.

Shimao’s long-term rating was downgraded to BB+ from BBB- with a negative outlook, according to a S&P statement Wednesday. That reverses a move S&P made just seven months ago, when it raised the firm to BBB-. 

The developer is China’s 13th biggest by contracted sales and among the largest property debt issuers with about $10.1 billion in outstanding local and offshore bonds. The company already has a junk Ba1 long-term rating from Moody’s Investors Service. The company still holds an investment-grade ranking of BBB- from Fitch Ratings.

Fantasia Plunges After Month-Long Trading Halt (9:35 a.m. HK)

After trading had been suspended for over a month, Fantasia shares were 50% less at HK$0.28 Hong Kong. The developer’s woes have been mounting after two directors quit the troubled Chinese developer last month and it defaulted on a dollar bond. 

Evergrande Faces a Payment Test As Grace Periods End (8.20 AM HK)

Evergrande faces its largest payment challenge since five months ago, when signs of liquidity crisis began to emerge at the company. 

Investors await to see if Evergrande makes any coupon payments for the three-dollar bond worth $148.1million before Wednesday’s expiration of the 30 day grace period. Bloomberg data shows Evergrande failed to meet the interest payment deadlines in January.  

The due date looms as credit-market stress spreads beyond China’s junk-rated builders. Investors are becoming more concerned about the effect on large property companies and the wider economy by selling off higher-quality dollars bonds. 

While there’s been no indication that Evergrande will miss the payment, any such development could also trigger cross-default clauses among the builder’s $19.2 billion of outstanding dollar notes and give creditors more room to negotiate.  

Developer CIFI plans Rights Issue after Bond Market Shuts (8.15 a.m. HK).

With the bond market all but closed for China’s embattled real-estate industry, one developer is tapping shareholders for fresh capital to weather the storm.

The Hong Kong-listed CIFI Holdings Group Co. has a planned rights issue that could provide funding for Chinese property businesses with high concentration ownership. According to Tuesday’s filing, CIFI is looking to raise up to HK$1.68 million ($216,000,000).

China Developments may be able to issue bonds under new rules: report (8:13 AM HK).

According to Securities Times, China will likely loosen restrictions on domestic real estate companies’ ability to issue local currency bonds as part of an effort to stop further financial deterioration.

Interbank bonds will be the focus of the easing, as they have seen their issuance drop in recent years. Banks and other institutional investors will resume “blood transfusions” for real estate enterprises through bond investment, the Securities Times said Wednesday in a front-page report. 

Authorities sent the policy signal at a meeting on Tuesday between some developers and the National Association of Financial Market Institutional Investors, which is under the country’s central bank and shares oversight of corporate bond issuance in the interbank market.

Evergrande NEV will raise HK$500m Stock for Discount (8:10 a.m. HK).

China Evergrande Group’s electric-car unit plans to raise HK$500 million ($64 million) in a share sale, which it says will be used to put its long-delayed vehicles into production. 

The stock was priced at HK$2.86 apiece, a 20% discount to yesterday’s closing price, China Evergrande New Energy Vehicle Group Ltd. said in a statement Wednesday. That’s way off the record high of HK$72.25 the stock reached in February, before a selloff as the unit’s parent company battled to stave off collapse. 

As recently as September, Evergrande NEV warned of a serious shortage of funds, saying it had suspended paying some of its operating expenses and some suppliers had stopped work, stoking concern it wouldn’t be able to start mass production of its long-awaited electric vehicles. 

A look at Evergrande’s maturity schedule:

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