Debt-laden property developers, such as China Evergrande Group, will need to scale back growth and resort to different means of financing to avoid defaults after increased government scrutiny is putting a squeeze on the shadowy pools of capital used to fund projects, reported Bloomberg.
This exploration of funding sources, after the government already curbed traditional avenues of funding, is threatening to restrain growth in the world’s second-largest economy.
“Polarization among Chinese developers will deepen this year, and more developers are likely to suffer from debt failures,” said John Sun, co-managing partner at Aplus Partners Management, which focuses on private equity and credit investments. Weaker developers “will need to sell assets to fight for survival, while some will likely default on their debt.”
Already making up nearly 27% of the more than $20 billion of missed bond payments this year, the nation’s cash-strapped developers are facing an increase in pressure to find new funding.