Investors Falling Off China Evergrande's Precipice, Analysts Warn

International investors that have been piling into China in recent years are now bracing for one of its great falls as the troubles of over-indebted property giant China Evergrande come to a head.

Photo Insert: A design photo shows a stadium to be built by Guangzhou Evergrande in Guangzhou, South China's Guangdong province.

The developer's woes have been snowballing since May. Dwindling resources set against 2 trillion yuan ($305 billion) of liabilities have wiped nearly 80% off its stock and bond prices and an $80 million bond coupon payment now looms next week, Marc Jones, Rodrigo Campos, and Herb Lash reported for Reuters.

What happens then is unclear. Bankers have said it will most likely miss the payment and go into a kind of suspended animation where authorities step in and sell some of its assets, but it could easily get messy.

"We will have to see what happens," said Sid Dahiya, head of EM corporate bonds at abrdn, formerly Aberdeen Standard, in London, which holds a small sliver of the bonds. "They are probably working on a deal in the background, but we don't have any clarity and we don't really have any precedents, so it is uncharted water."

Evergrande warned just over two weeks ago that it risked defaulting on its debt if it failed to raise cash. Since then, it has said that no progress has been made with those efforts. Analysts say the bigger picture is that if Evergrande - which has more than 1,300 real estate projects in over 280 cities - does topple, it will firmly dispel the idea that some Chinese firms are too big to fail.

It would probably still apply to big state-linked firms of course, but it comes too after Beijing's clampdowns on big tech firms like Alibaba and Tencent wiped nearly a trillion dollars off its markets earlier in the year.

Contagion from Evergrande has largely been confined to China's other highly-indebted "high-yield" firms which have also slumped, but Hong Kong's heavyweight Hang Seng also hit a 10-month low on Thursday showing there is some spread. There are big-name global funds involved too.

EMAXX data shows that Amundi, Europe's largest asset manager, was the largest overall holder of Evergrande's international bonds, although it says it sold most of it before things turned really ugly.

The Paris-headquartered firm had just under $93 million of a $625 million bond due for repayment in June 2025 and around $300 altogether back in March. It now holds $25 million in total. UBS Asset Management currently holds around $85 million of that 2025 issue and is also one of the bigger overall holders.

Amundi's Co-Head of EM Corporate & EM High Yield, Colm d’Rosario described the fundamental picture for many Chinese firms as intact "For now, however, we await the commencement of a restructuring process (of Evergrande) to gather more information. It remains to be seen the scale of loss that investors will face." Back in April Evergrande's bonds were trading around 90 cents on the dollar, now they are closer to 25 cents.

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