China Evergrande bonds continue to face a rout this week
The drop here extends the slump from yesterday, following a ratings downgrade by CCXI on Evergrande and its onshore bonds to AA from AAA last week. The ratings firm also placed the company and its bonds on a watchlist for further downgrades.
The downgrade also made the company’s bonds ineligible for use as collateral in repo transactions, prompting an exodus in the domestic market.
The over 20% drop today pertains to Evergrande’s 5.9% May 2023 bond, with its 6.98% January 2023 bond falling by more than 15% and 6.98% July 2022 bond down over 9%.
That already follows the rout yesterday that prompted the Shanghai Stock Exchange to temporarily suspend the 6.98% July 2022 bond due to “abnormal fluctuations”. Evergrande’s 5.9% May 2023 bond also fell by more than 35% yesterday.
Some context on the Evergrande situation from Adam’s post
There’s ample evidence that Chinese markets are trembling. Evergrande — which is China’s second-largest developer — is on the verge of crumbling. It holds $302 billion in liabilities and its bonds are trading at 27-cents from 85-cents in June. It’s struggling to find the money to pay contractors and complete homes. It’s a snowballing crisis and there are signs the central bank has gotten involved with liabilities extending to 128 banks and 121 non-bank institutions.