Evergrande latest, plus another Chinese developer just missed a payment

Here’s the latest on Evergrande and the troubles for the Chinese real estate sector.

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There have been more developments relating to Evergrande, as well as the Chinese real estate sector as a whole.

Kaisa Group Holdings Ltd is a business that is listed in the Hong Kong. It has already seen its share price fall by around 70% over the last six months.

But, according to reporting by international media like the BBC, Kaisa Group is another Chinese developer that has missed a payment. Kaisa Group reportedly said it was “facing unprecedented pressure on its finances due to a challenging property market” as well as downgrades by rating agencies. This means it is harder for the business to get more loans.

Kaisa Group shares, and three of its units, were halted on Friday. One of its businesses missed making a payment on a wealth management product. However, the company didn’t explain why it went into a suspension.

Latest on Evergrande

It was also reported that Evergrande is still trying to deal with its huge US$300 billion of debt.

What Evergrande has done this week is that, according to the BBC, it sold its UK-based electric motor making business called Protean. It paid US$58 million for this business in 2019, so it still has almost US$300 billion of debt.

Over the next couple of days, Evergrande is meant to pay US$82.5 million of interest payments.

In the middle of next week, the company’s 30-day ‘grace period’ is going to expire on other interest payments that it already owes.

One of the company’s plans had been to sell a substantial part of its property services business for US$2.6 billion, but it wasn’t able to make a deal for that asset (yet).

What could this mean for the iron ore price

China is the world’s largest buyer of iron ore. The Chinese real estate sector is a huge user of Australian iron ore through all of the steel that is used.

The BBC reported that the total debt of all the property developers is over US$5 trillion. Developers including Fantasia, Sinic and China Properties Group have already defaulted on payments that they should have made. That adds to Evergrande and Kaisa Group facing problems.

If there is less demand for iron ore, then the worry is that it could lead to lower iron ore prices, even though iron ore has already fallen by over 50% since earlier in the year.

The broker UBS is quite bearish on iron ore, with miners like Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) expected to see lower profits in FY22.

UBS is expecting iron ore to fall to US$85 per tonne of iron in FY22 and then to US$80 per tonne in FY23. That’s why it currently rates Rio Tinto as a sell, Fortescue as a sell and BHP as a hold. The only reason BHP is a hold is because of its other commodities which are mostly seeing higher prices at the moment.

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