Investors, fearing more defaults and falling prices, sell US dollar bonds of many developers.
The worst affected were the bonds of Casa Group Holdings Ltd.
, a residential developer that had defaulted on its international loan earlier in 2015. The company’s Hong Kong-listed shares fell 7.5% on Thursday despite a city-wide stock market rally.
A casa bond with a 9.375% coupon to mature in 2024, was bid in Asia at just 55 cents on the dollar on Thursday afternoon, and has fallen nearly 20 points this week.
Sunac China Holdings’ 7.95% bond Ltd.
, another developer investors had bid 72.5 cents on the dollar on Thursday after falling sharply in recent days.
Junk bond investors in Asia were jolted earlier this week by an unexpected dollar bond default by luxury developer Fantasia Holdings Group Co, which previously indicated it would pay $206 million in debt maturing on October 4. Will do
September sales numbers from several developers also saw a significant drop from August, as demand from Chinese home buyers subsided.
“Monday’s default on Fantasia has intensified risk-off sentiment,” said Cheong Yin Chin, a senior analyst covering Chinese corporates at debt-research firm Creditsites. Industry giant China missed dollar bond payments from Evergrande Grouphandjob
What has remained silent on the issue for weeks has also contributed to investor pessimism.
The sale could continue, Ms Cheong said, adding that the extreme market reaction is likely “from a mix of investors fearing how China will handle Evergrande, and more developers who could default.”
A day earlier on Wednesday, an ICE BofA index of high-yield dollar bonds of Chinese companies showed a yield of more than 18%, the highest in nearly a decade.
Some market participants said bond prices were falling sharply on low trading volumes, while mainland China is in the middle of a week-long public holiday that began on October 1.
Andrew Dewar, an investment manager with a focus on Asian debt at GAM Investments, said, “Liquidity is pretty low with China going on holiday, and the government hasn’t stepped in. They are standing aside and relaxing things. Huh.”
He said that “brokers are trying to find a destination, until someone takes a nibble, then the price goes down.”
Uday Patnaik, Head of Emerging Markets Fixed Income at Legal and General Investment Management, said he has sold almost all high-yield Chinese real estate bonds from his firm’s absolute return fund.
“I don’t think the Chinese have any control over this situation,” he said. “It started with the Evergrande issue, which was not handled properly. Now it is a region-wide problem,” he said.
Mr Patnaik said the real estate sector crisis will continue to impact consumer confidence in China and other parts of the economy, unless Beijing takes steps to stem the decline.
—Francis Yoon contributed to this article.