Default Of Second Chinese Developer Sparks China Junk Bond Meltdown As Contagion Explodes, by Tyler Durden

This is how debt implosions get rolling. From Tyler Durden at

As we expected, Evergrande is only the first cockroach.

With the world waiting to find out the fate of a $260 million bond issued by Jumbo Fortune Enterprises which is guaranteed by Evergrande, and which has no grace period so an event of default could take place as soon as this week (the bond has five business days to make payment subject to administrative and technical error), overnight, stocks and bonds of China’s heavily leveraged property tumbled after a failure by smaller developer Fantasia Holdings Group to repay notes deepened investor concerns about the sector’s outlook.The non-payment forced S&P to downgrade Fantasia (1777.HK) to selective default earlier this morning.

As Bloomberg points out, “Chinese junk dollar bonds were poised for their biggest selloff in at least eight years amid renewed concern that authorities will do little to alleviate the credit crisis gripping the industry.” Yields are near a decade high, and with Evergrande stock still halted, investors took out their wrath on peer developers who still trade and whose shares tumbled, with Sunac China Holdings and China Aoyuan Group falling at least 10%. Meanwhile, as noted on Sunday, Evergrande’s silence on a reported stake sale in a unit left its shares suspended.

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