Local banks have no direct exposure to China Evergrande Group but their share price could be impacted by market sell downs
The local banks have no direct exposure to China Evergrande Group (Evergrande). A DBS Group Holdings spokeswoman says "DBS has no exposure to Evergrande"; a United Overseas Bank spokeswoman says, "UOB does not have any exposure to Evergrande"; and The Edge Singapore understands that Oversea-Chinese Banking Corp also have no exposure to Evergrande.
In the US, Bloomberg reported that the US Federal Reserve chair, Jerome Powell said that there is little direct US exposure to China Evergrande’s debt. “The Evergrande situation seems very particular to China, which has very high debt for an emerging economy,” Powell said, according to Bloomberg. However, he noted that the Evergrande situation could ‘impact global financial conditions’.
For instance, Reuters reported that BlackRock and the investment banks of HSBC and UBS were among the largest buyers of the debt of Evergrande, citing Morningstar data. “BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its US$1.7 billion Asian High Yield Bond Fund, according to Morningstar. HSBC increased its positions in the company by 40% through July, according to Morningstar. UBS increased its position by 25% through May, the latest date available in the fund tracker's database,” Reuters reported.
The indirect impact should Evergrande default could be felt in the equity markets through fund redemption if there is any. As a case in point, Blackrock funds n ETFs own 2.37% of OCBC, 2.16% of UOB and 2.06% of DBS.
According to a Sept 23 Citi report, markets had some relief from Evergrande’s onshore subsidiary announcing to honour the coupon payment on an onshore bond due on Sept 22. But there is no clarity on another coupon due on an offshore bond of Evergrande’s financial holding company due on Sept 23. Bond covenants state a 30-day grace period from a missed coupon payment date before it triggers a default.
Meanwhile, Asia Markets reported highlighted sources close to the Chinese government that “a deal that will see China Evergrande restructured into three separate entities is currently being finalised by the Chinese Communist Party and could be announced within days. State-owned enterprises will underpin the restructure, effectively transforming the property developer into a state-owned enterprise.”
“Any such confirmation of nationalisation of the troubled real estate company shall ease concerns over potential disruptive moves in markets, in our view, which have so far been calm. However, a longer term concern over a slowdown in China’s property sector and its impact on China’s growth prospects is likely to persist,” Citi says.
China Evergrande Centre in the Wan Chai area of Hong Kong / Bloomberg