Chinese developers took a drubbing on Thursday, with shares and bonds falling, creditors seizing assets and rating agencies distributing more downgrades, ahead of a final debt payment deadline for China Evergrande Group on Friday.
Shares of Kaisa Group were hardest-hit, losing nearly a fifth of their value on Thursday after rating agency downgrades that highlighted the company's limited access to funding and significant US dollar debt obligations.
Kaisa's shares fell by as much as 19.9% to an all-time low of HK$1.17 on Thursday, while its 11.25% April 2022 bond dropped more than 8 points to trade at less than 35% of its face value, according to data provider Duration Finance.
Kaisa led losses across the real estate sector. A Hong Kong index tracking mainland property companies fell 1.3% and the CSI300 Real Estate sub-index lost 2.3%.
Shares of China Evergrande Group, whose liquidity crunch against more than $300 billion in liabilities has sparked global concern it could trigger systemic risks, fell more than 5%. Evergrande faces a final deadline on Friday for a $47.5 million coupon payment that was due 29 September.
A failure to make that interest payment, less than a week after it secured $83.5 million for a last-minute payment on an earlier coupon, would tip the company into formal default and trigger cross-defaults on all its more than $19 billion worth of bonds in international capital markets.
Evergrande's difficulties have exacerbated a financial squeeze for developers in China's $5 trillion Chinese property sector, hit by government clampdowns on excessive debt.
"Severe tightening of Chinese developers' funding access has reduced liquidity for the sector, creating a negative credit loop. Financially weak companies have reduced spending on land and construction to preserve liquidity for debt servicing, while sales have declined," said Kaven Tsang, a senior vice president at Moody's Investors Service.
"At the same time, tightened bank control over project-level cash for a few financially weak developers limited their ability to manage their cash flow and caused them to default."
Adding to indications of broader sector stress, developer Oceanwide Holdings Co Ltd said on Thursday that holders of corporate debt issued by two of its offshore units have taken possession of the debt's collateral after the units failed to repay the maturing notes.
Yango Group Co, which has more than $14 billion in outstanding dollar bonds, became the latest developer to be hit with a credit downgrade on Thursday, as Fitch cut its rating to "B-" over its weakened access to funding and increasing liquidity pressure.
On Wednesday, S&P Global and Fitch Ratings both cited concerns over Kaisa's debt load as they cut the company's rating to "CCC+".
S&P said Kaisa's capital structure is unsustainable given the company's sizable near-term debt maturities, weakening liquidity, and inadequate free cash flow through 2022.
Fitch noted that not all the cash on Kaisa's balance sheet would necessarily be available to service its debt "given high minority interests and project commitments."
Kaisa attended a meeting on Tuesday with seven other developers, China's state planner and foreign exchange regulator at which participants sought to contain the fallout from Evergrande.
Some developers proposed extending offshore bond maturities and undertaking debt restructuring.
Refinitiv data showed Kaisa has 19 outstanding dollar bonds worth more than $12 billion, with a $400 million bond coming due in December. Bonds worth an additional $3 billion come due in 2022, on top of interest payments of around $1 billion, Fitch said.