China developer debt slump is engulfing even high-rated issuers

[BEIJING] The worst selloff of China property developer debt in a decade has been spreading in recent weeks to investment-grade giants, injecting volatility into what had been some of the most staid investments in the industry.

Spreads on high-grade Chinese dollar bonds have widened about 15 basis points from a 18-month low in September, according to a Bloomberg Barclays index.

Yield premiums on a note from the nation's biggest builder Country Garden Holdings blew out some 155 basis points Monday, the most in about a month. A security from Shimao Group Holdings suffered a similar move.

That's all keeping investors on edge, even while most expect the higher-rated property firms to weather turmoil in the sector triggered by a crackdown on excessive leverage and a liquidity crisis at junk bond giant China Evergrande Group.

Home sales tumbled last month at major developers, which may exacerbate cash crunches that some firms are suffering.

Another factor has been spillover from rising angst about junk-rated Kaisa Group Holdings. Traders have treated it as a benchmark for the broader group of Chinese dollar bonds given it's large amount of outstanding debt. Such junk bonds from the industry continue to bear the brunt of the pain, however. The worries about contagion from Evergrande sent high-yield dollar bond yields to more than 20 per cent recently and the securities continued to sell off Tuesday.

BLOOMBERG