China’s property developers are struggling to pay bills that many of their bond investors didn’t know were there in the first place. Missed payments on off-balance sheet IOUs such as high-yield consumer products, secretive loans and private bond guarantees have rocked China’s credit market in recent weeks.
Dollar bondholders are struggling to know their place in the repayment queue in the event of a default, forcing a dramatic repricing of risk that’s all but frozen the primary market for developers.
Kaisa Group said it failed to meet payments on wealth products, triggering a plunge in its bonds and shares. Fantasia Holdings Group defaulted on a dollar bond last month only weeks after assuring it had sufficient working capital and no liquidity problems. Its failure to pay undermined the credibility of Chinese issuers just after Bloomberg reported China Evergrande was on the hook for an unknown bond issued by a separate entity.