According to the Financial Times, foreign investors might lose about $130 billion on China’s real estate developers’ offshore debts amid the ongoing property crisis.
The news outlet said that two-thirds of over 500 outstanding bonds issued by Chinese developers are now priced below 70 cents on the dollar, a common threshold for distressed status. That means investors technically get back only 30% of their invested money.
Generally, bond investors have priced $130 billion in losses on over $200 billion in outstanding offshore bonds issued by Chinese developers. That means the bond price is traded at a discount of below nearly two-thirds of its market value.
The crisis started when China’s property giant, Evergande, defaulted on its debts, causing a chain reaction in the sector that accounts for up to 30% of the country’s annual outputs.
As the Financial Times reported, investors initially hoped that the default issue was confined to Evergrande, which relied on presales of unfinished projects.
But stalled constructions at Evergrande and high-risk developers in the sectors caused fear among the general public that other property developers might have the same problems. That triggered the confidence crisis that hit sales and sent the whole sector into a liquidity crisis.
It led to nationwide mortgage boycotts on unfinished buildings from homebuyers that destroyed home buying confidence.
Since then, the sector has had no sign of recovery; it has worsened.
Last month, Caixin Global reported that about 200 major Chinese property developers had to pay $26 billion of due debts in June and July.
In June, credit rating agency Moody issued 91 downgrades for high-yield Chinese real estate developers in the previous nine months.
Last week, Chinese authorities stepped in to rescue the sector as the People’s Bank of China, China’s central bank, lowered mortgage rates and pumped $59 billion into the financial system.
However, experts remain skeptical about Beijing’s move.
Rosedale Yao, a property market analyst at Gavekal Dragonomics, told the Financial Times, “The whole situation is increasingly out of control.”
He added, “This time last year, no one expected what we’re seeing today with mortgage boycotts and construction suspensions. A year from now, we could be facing an even worse situation.”