Chinese real estate sector suffers fresh downgrades

The deep crisis of Chinese Evergrande Group and major home builders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday triggering new credit rating downgrades.

Evergrande missed its third round of interest payments on its international bonds this week, and other firms have also warned they are likely to default.

Rating agency S&P Global delivered downgrades to two of the sector’s bigger firms, Greenland Holdings and E-house, and warned it could cut their ratings further.

The spread on the equivalent high-yield index that the likes of Evergrande are part of surged to a new high of 2,337 basis points. That drove the yield, which reflects how much firms would have to pay to borrow, to 24%.

Evergrande did not pay nearly $150 million worth of coupons on three bonds due on Monday, following two other missed payments in September.

While a 30 day grace period means the company has not technically defaulted, investors say they are expecting a long and drawn-out debt restructuring process.