Numerous sectors of the Chinese economy could be exposed to heightened credit risk if the country’s second-largest property developer, China Evergrande Group (恒大集團), were to default, although the overall effect on the banking sector would be manageable, Fitch Ratings Ltd said in a note on Tuesday.
Evergrande is scrambling to raise funds to pay its many lenders and suppliers, as it teeters between a messy meltdown with far-reaching effects, a managed collapse or the less likely prospect of a bailout by Beijing.
Regulators have warned of broader risks to the country’s financial system if the company’s US$305 billion of liabilities are not contained.
“We believe a default would reinforce credit polarization among homebuilders and could result in headwinds for some smaller banks,” Fitch said.
The rating agency on Tuesday last week downgraded Evergrande to “CC” from “CCC+,” indicating that it viewed a default of some kind as probable.
On Tuesday, Evergrande said it has engaged advisers to examine its financial options and warned of cross-default risks amid plunging property sales and a lack of progress in asset disposals.
Fitch said that 572 billion yuan (US$88.8 billion) of Evergrande’s borrowings were held by banks and other financial institutions, but banks might also have indirect exposure to the developer’s suppliers, who are owed 667 billion yuan for goods and services.
“Smaller banks with higher exposure to Evergrande or to other vulnerable developers could face significant increases in non-performing loans (NPLs), depending on how any credit event involving Evergrande develops,” Fitch said.
However, a recent People’s Bank of China sensitivity test showed that the average capital adequacy ratio of the 4,000 banks in the country would only drop modestly if the NPL ratio for property development loans were to rise by 15 basis points, the agency added.
Evergrande’s Hong Kong-listed stock slipped as much as another 5 percent to HK$2.82 yesterday morning, a fresh low since January 2014.
However, its property management and electric vehicle units bounced as much as 10.4 percent and 9.3 percent respectively.
In the debt market, Evergrande’s Shanghai-traded July next year bond fell 5.6 percent to 28.3 yuan, while its US dollar bond due March next year dropped 20 percent to US$0.27502, yielding more than 500 percent.
Fitch also said that the risk of significant pressure on house prices in the event of a default would be low, and it expected that the Chinese government would act to protect households’ interests to ensure home deliveries.
Yesterday, about 40 protesters stood near the entrance of Evergrande’s headquarters in Shenzhen, prevented from going inside by dozens of security personnel.
This followed chaotic scenes at the headquarters two days earlier, as disgruntled investors crowded its lobby to demand repayment of loans and financial products.
Videos circulating on Chinese social media also showed what were described as Evergrande-related protests elsewhere in China.
Shares of contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) came under pressure yesterday after a report that Apple Inc is looking to shift some orders from the Taiwanese company to Intel Corp. TSMC shares fell NT$55, or 2.4 percent, to close at NT$2,235 on the local main board, Taiwan Stock Exchange data showed. Despite the losses, TSMC is expected to continue to benefit from sound fundamentals, as it maintains a lead over its peers in high-end process development, analysts said. “The selling was a knee-jerk reaction to an Intel-Apple report over the weekend,” Mega International Investment Services Corp (兆豐國際投顧) analyst Alex Huang
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is expected to remain Apple Inc’s primary chip manufacturing partner despite reports that Apple could shift some orders to Intel Corp, industry experts said yesterday. The comments came after The Wall Street Journal reported on Friday that Apple and Intel had reached a preliminary agreement following more than a year of negotiations for Intel to manufacture some chips for Apple devices. Taiwan Institute of Economic Research (台灣經濟研究院) economist Arisa Liu (劉佩真) said TSMC’s advanced packaging technologies, including integrated fan-out and chip-on-wafer-on-substrate, remain critical to the performance of Apple’s A-series and M-series chips. She said Intel and Samsung
POWER BUILDUP: Powered by Nvidia’s B200 Blackwell chips, the data center would support MediaTek’s computing power demand and business growth, the company said Smartphone chip designer MediaTek Inc (聯發科) yesterday launched a new artificial intelligence (AI) data center with a maximum capacity of 45 megawatts to meet its rising demand for computing power required to develop new advanced chips for AI applications. The company has completed the first-phase computing power buildup at the data center in Miaoli County’s Tongluo Township (銅鑼), providing 15 megawatts of capacity to support its research and development (R&D) capabilities, despite an industrywide shortage of key components, MediaTek said. Supply constraints have plagued a wide range of key components, including memory chips, solid-state drives, power supply units and central
TRANSITION: With the closure, the company would reorganize its Taiwanese unit to a sales and service-focused model, Bridgestone said Bridgestone Corp yesterday announced it would cease manufacturing operations at its tire plant in Hsinchu County’s Hukou Township (湖口), affecting more than 500 workers. Bridgestone Taiwan Co (台灣普利司通) said in a statement that the decision was based on the Tokyo-based tire maker’s adjustments to its global operational strategy and long-term market development considerations. The Taiwanese unit would be reorganized as part of the closure, effective yesterday, and all related production activities would be concluded, the statement said. Under the plan, Bridgestone would continue to deepen its presence in the Taiwanese market, while transitioning to a sales and service-focused business model, it added. The Hsinchu
RSS