By Andrew Galbraith

SHANGHAI (Reuters). -The impact of China Evergrande Groups’ debt problems on the banks system can be controlled, a central bank official claimed Friday. This rare statement was made in response to a liquidity crisis at the large developer who has roiled global market markets.

Chinese authorities have urged Evergrande not to delay asset disposals or resumption of project, Zou Lan of the People’s Bank of China (PBOC) stated in a briefing. She added that Evergrande is not particularly concentrated among financial institutions.

This company has not managed and operated well in recent years. “It failed to make prudent decisions in response to market changes, and blindly diversified and increased its business,” Zou said to the Beijing briefing.

China’s officials and the state media are largely silent about the Evergrande crisis. Evergrande has been late on a number of bond interest payments, and is now insolvent with $300 billion. This makes it the most indebted developer in the world.

Another Chinese developer, Xinyuan Real Estate Co., avoided a default of a maturing dollar bonds on Friday. They stated in a Singapore Exchange filing that bondholders had accepted an offer to cash and new bonds in return for maturing notes.

Xinyuan claimed that the holders of over 90% of $229,000,000 notes due Oct. 15, 2012, had accepted the exchange. It would deliver new bonds of $205.4 Million and $19.1 Million cash.

According to Duration Finance, Xinyuan’s September 2023 14.5% bond traded at 58.35cs Friday.

Other developers warned that they might default on their bonds. Some have even taken steps in order to postpone payments due to Evergrande’s difficulties.

Evergrande in China, China’s number two developer of real estate, has missed another round this week for interest payments on international bonds. It boasts 1,300 properties across more than 280 countries.

PBOC URGES SPEEDY ASSET SALES

Zou, who spoke at the Friday briefing said Evergrande must increase asset disposals, and resume project building. Authorities will support financing.

Some lenders have had “misunderstandings” about the central bank’s debt control policies, causing financial strains for some developers, as some new projects were unable to get loans even after repaying existing loans, Zou said.

“This short-term extreme reaction is a normal market phenomenon,” he said.

Chinese developers could face over $500 million in coupon payments for high-yield bonds. The latest Refinitiv data shows that coupon payments to Kaisa Group Holdings (or Fantasia Holdings) are due on this weekend.

Zou spoke of the three quarters that began this year, saying, “In certain cities, the property price surged too quickly, causing approval and issuance personal mortgages to been restrained.”

He stated that “Once housing costs stabilize, both supply and demand will normalize for mortgages in these cities.”

FRESH SETBACKS

Reuters has learned that Evergrande was still facing financial difficulties. Sources tell Reuters that Yuexiu Property, a Chinese state-owned company, pulled out of a $1.7 billion purchase deal for the Hong Kong headquarters. This decision came amid concerns about Evergrande’s poor financial position.

Evergrande, which has struggled to get rid of assets and repay creditors, has failed to make three rounds of interest payments to its international bonds. The collapse of talks is a sign of its difficulties.

Hong Kong’s Audit regulator stated on Friday that Evergrande’s 2020 accounts were under investigation and they would be audited by PwC. The auditor was concerned about Evergrande’s reporting regarding whether the company could operate as a going concern.

The Reuters report led to Evergrande bonds falling. Data provider Duration Finance reported that Evergrande’s June 2025 bonds, 8.75%, fell by more than 6% and traded at a discount greater than 80% of their face values.

BOND SLUMP DEEPENS

Duration Finance data indicated that bonds of other developers were experiencing a worsening trend on Friday. Sinic Holdings Group’s 10.5% June 2022 Bond fell over 20% to 12.25cs. Ronshine China Holdings’ February 2022 Bond dropped more than 6 percent to 68.35cs.

Late Thursday night U.S., the spreads for high-yield Chinese corporate dollars bonds set a new record. The spreads have nearly tripled since May. Investment-grade spreads, however, remained close to their maximum in over two months.

This week, shares of property developers were also affected by fears about contagion. An index that tracks A-shares in this sector lost 0.1% Friday to lose 0.38% in blue-chip index. It also suffered losses of 4.5% since Tuesday.

China has intensified its property market controls since the end of 2020. It introduced new measures to control and monitor developers’ debt.

There is speculation that the government will relax restrictions after cooling economic growth and slowing new construction. This was also true during past downturns.[ECILT/CN]