Troubles in China's vast real estate sector could spill over to the global economy, including the United States, according to the US Federal Reserve, the CNN reported.
The US central bank has warned that China's ongoing property woes could elevate "financial stresses in China, [which] could further strain global financial markets and negatively affect the United States".
In its biannual report on financial stability, the Fed pointed specifically to the crisis at Evergrande, China's most indebted developer. The company has sparked fears of contagion since September upon warning that it could default on its debts of more than $300 billion. Several other real estate developers are also in trouble, the report added.
Though "Chinese authorities have introduced measures to cool down property markets", there is a risk that "financial vulnerabilities will continue to rise", the Fed noted, CNN reported.
The central bank warned that given the size of China's economy and financial system, and its global ties, "financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States", it added.
Evergrande is one of China's largest real estate developers. The company is part of the Global 500, meaning that it's also one of the world's biggest businesses by revenue.
Stocks in Hong Kong, New York and other major markets have previously been swayed by fears of contagion from Evergrande and a slowdown in Chinese growth.
Modern Land China has become the latest developer from Asia's largest economy to miss a dollar bond payment, underscoring the stress spreading across the sector, Nikkei reported.
The company failed to pay interest and principal due on a $250 million bond, according to a filing on Tuesday with the Singapore stock exchange, where the bond is listed.
The repayment was not met, "Owing to unexpected liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment, the real estate industry environment and the Covid-19 pandemic faced by the group," the statement said, the report added.
Fantasia Holdings, Sinic Holdings and China Properties have already defaulted on offshore bonds this month, while China Evergrande Group narrowly averted a default by making a coupon payment on time last week. Evergrande faces another deadline on Friday. Global ratings agencies have already slashed their score on a record 44 Chinese developers this month as liquidity woes mount amid rising maturities, the report said.
Modern Land last Wednesday abandoned a proposal to extend repayment on the bond and the next morning halted trading of its stock and debt securities pending another announcement. The trade suspension remains in place, it said in the latest statement.
A regulatory crackdown on Chinese developers by authorities -- who are eager to rein in excessive leverage before it sparks a financial crisis -- has closed down funding avenues for developers. Under rules issued last year, companies can enhance borrowings only if their balance sheets meet net gearing, liquidity and other guidelines under the so called "three redlines" rules, the report said.
The clampdown has pushed banks to cut their exposure to the sector, and companies have not tapped the offshore bond market in over a year.
Despite such moves, the missed payments by Evergrande and defaults by smaller rivals have sparked fears of contagion across the $50 trillion Chinese financial systems in recent weeks.
While most economic indicators deteriorated in 2020, house prices largely defied the pandemic in over 57 of the 60 countries surveyed by the International Monetary Fund.
India, the Philippines and the UAE bucked the housing bite reported in the IMF Global House Price Index released Monday. Three quarters saw increases in house prices in 2020. The trend has largely continued in countries with more recent data.
The increases in house prices relative to incomes makes housing unaffordable to many segments of the population, as highlighted in the Fund's recent study of housing affordability in Europe.
The post-pandemic working arrangements could also exacerbate inequality concerns as high-earners in tele-workable jobs bid for larger homes, making homes less affordable for less affluent residents, IMF researchers said.
The surge in house prices has also had an impact on headline inflation in some countries and could contribute to more persistent inflationary pressures.
IMF research indicates that low-interest rates contributed to the boom in house prices, as did policy support provided by governments and workers' greater need to be able to work from home.
In many countries, including the US, online searches for homes reached record levels. The American home-sales market has been on a historic rally during the pandemic and well into the current Fall season.
Along with these demand factors, house prices also increased as supply chain disruptions raised the costs of several inputs into the construction process.
While fundamentals of demand and supply can account for much of the buoyancy of housing markets during the pandemic, policymakers are nonetheless keeping a close watch on developments in this sector.
Over a decade ago, a turnaround in house prices marked the onset of the Global Financial Crisis. However, the twin booms in household credit and house prices in many countries before that crisis-and many previous housing crashes-appear less prevalent today.
Hence, in a plausible scenario, a rise in interest rates, a withdrawal of policy support as economies start to recover, and a restoration of the timely supply of building materials, could lead to some normalisation in house prices, the researchers said.
Adani Green Energy Ltd (AGEL) has completed the acquisition of SB Energy Holdings Ltd (SB Energy India) in an all-cash deal for which definitive agreements were signed on May 18, 2021.
With this deal, SB Energy India is now a 100 per cent subsidiary of AGEL. Earlier, it was a 80:20 joint venture between Japan-based SoftBank Group Corp and Bharti Group.
The transaction pegs SB Energy India at an enterprise valuation of USD 3.5 Billion (Rs 26,000 crore) and marks the largest acquisition in the renewable energy sector in India.
Just last week, Adani Group Chairman Gautam Adani had announced that the Group would invest over $ 20 billion across the next 10 years in renewable energy generation.
"This transaction takes us closer to becoming the global leader in renewables," said Vneet S. Jaain, MD & CEO, AGEL.
"The addition of these high-quality large utility-scale assets from SB Energy India demonstrates Adani Green Energy's intent to accelerate India's efforts to transition towards a carbon neutral future. Our renewable energy foundations will enable an entire ecosystem of new industries that can be expected to catalyse job creation in multiple sectors."
SB Energy India has 5 GW renewable assets across four states in India through its SPVs. The portfolio holds 1,700 MW of operational renewable assets, 2,554 MW of assets under construction and 700 MW of assets near construction. Solar capacity accounts for 84 per cent of the portfolio (4,180 MW), wind-solar hybrid capacity accounts for 9 per cent (450 MW) and wind capacity accounts for 7 per cet (324 MW).
Split across 15 projects with an average project size of 330 MW, this is one of India's highest quality renewable portfolios, with many of the assets being solar park-based projects and constructed using best-in-class governance, project development, construction and operations and maintenance standards.
The value accretive acquisition boosts AGEL's operational portfolio to 5.4 GW and its overall portfolio to 19.8 GW implying a 4x growth locked-in. AGEL's counterparty mix for its overall portfolio of 19.8 GW is further reinforced with 87 per cent sovereign rated counterparties.
The Adani Renewable Energy (MH) Limited (AREMHL), a wholly-owned subsidiary of Adani Green Energy Ltd (AGEL), will acquire a 40MW operating solar project in Odisha.
The AREMHL has signed definitive agreements with Essel Green Energy Pvt Ltd to acquire 100 per cent economic value in a special purpose vehicle (SPV) that owns the solar project in Odisha, the company said in a statement on Thursday.
The project has a long-term Power Purchase Agreement (PPA) with Solar Energy Corporation of India (SECI) for Rs 4.235 per unit, with remaining PPA life of about 22 years, the company said.
The closing of the transaction is subject to customary conditions. The acquisition of the project is at an enterprise valuation of Rs 219 crore.
Vneet Jaain, managing director & CEO of Adani Green Energy Ltd., said, "With the acquisition of this project in Odisha, AGEL will now have its footprint across 12 States in India. We are on an expansion path that will make us the world's largest renewable player by 2030."
With this acquisition, AGEL will achieve a total renewable capacity of 19.8 gigawatts (GW). The total portfolio includes 5.4 GW operational assets, 5.7 GW assets under construction and 8.7 GW near construction assets.
Gautam Adani, the Chairman of the Adani Group, on Monday coined the slogan "A greater India is visibly an India for Indians" as the country embarks on a journey of growth.
Adani was speaking at Priyadarshni Academy's 37th Global Awards where he was conferred the Ramakrishna Bajaj Memorial Global Award.
"Such an approach is not about politics - but is about the emerging world order. If there ever was a time when democratic India had a need and opportunity to stand strong and celebrate its Indianness, it is now - at the doorstep of decades of future growth. The dimensions - our history, culture and boundaries - must now combine to encapsulate the nation, bind the nation, and instil a sense of patriotism in the nation," Adani said.
"Be it sustainable technologies for a greener world, digital technologies for a more connected India, education solutions for a more literate India, medical solutions for a healthier India, agricultural solutions for the farmers of India and all the enabling infrastructure - these are all trillion-dollar opportunities ahead in the not-too-distant future," he said.
"They lay the foundation for our 'Aatmanirbharta'. This journey must be led by companies from our own nation that compete at some levels and yet collaborate at other levels. India's massive growth offers opportunities for all. The guiding North Star must be 'A greater India is visibly an India for Indians'," Adani added.
He said India had nothing to do with the Covid virus but sustained some of the most drastic consequences and criticism on the global stage.
"There was not a single major international voice of understanding. All this had the gravitas to not criticise any country as they fought their own battles to control the virus," he added.
"The fact that we have fought back should in itself be a lesson for all of us that there can be no better defence than 'Aatmanirbharta' to mitigate future black swan events.
"We should never find ourselves in such a position ever again. This requires muscle - to stand up to the pressures global organisations can bring to bear. Over the next two decades, India will have the biggest and the youngest middle class that ever existed. We will be the market that every global company will target. In this euphoria, let us never forget that we were largely left alone to fight the pandemic," Adani said.
"This does not mean that there cannot be any criticism. However, criticism cannot be at the cost of national dignity. It cannot be at the cost of destroying the confidence of a nation. It cannot be about dividing the society - else we play right into the hands of those that do not want to see a resurgent India," Adani added.
As the Chinese real estate behemoth Evergrande Group landed in a serious crisis, revealing the real hidden problems of the country's property market driven by shadow banking, business community across the world is carefully watching the developments. A tumbling real estate sector in China could affect the world economy.
According to the Institute of Chinese Studies (ICS), China's household debt in December last year was estimated at 150 percent of its disposable income. This was also marked by a rise in property prices and seems to be concentrated among the millennials.
"There have been serious over-investment in several sectors in China, real estate being just one of the many. So, there are issues but since there is little transparency regarding data, it is difficult to assess the intensity of the problem," Shakti Sinha, Director, Atal Bihari Vajpayee Institute of Policy Research and International Studies, MS University earlier told India Narrative.
The Evergrande crisis has brought out a critical issue -- the problem of high and unsustainable debt that several Chinese firms may be getting caught in at this juncture when the world economy is going through testing times amid the Covid 19 pandemic and shifting geopolitical contours.
China, which has remained focused on economic growth, has been witnessing a surge in its overall debt level - whether it is for local governments or corporates.
High credit has been a pillar of China's economic growth. The ICS said the high credit borrowing has also put a strain on the financial institutions of the country. Besides, "zombie" companies that have little to no productive use, are borrowing more and more simply to meet their current obligations.
The ICS study also pointed out that several state-owned and private companies in China have property subsidiaries, and property loans made to these subsidiaries are sometimes presented in the books as going to the parent company. "This results in the share of property-related debt being much higher than what is available in the official data."
Earlier, Reuters reported that China's corporate bond defaults hit a record high this year, highlighting tightening credit conditions and a growing reluctance by regional governments to bail out troubled state-owned firms.
Chinese companies' bond defaults amounted to 62.59 billion yuan -- $9.67 billion in the first half of 2021, the highest ever, according to Fitch Ratings.
"That increasing proportion of defaults by state-owned enterprises (SOEs) has raised concerns among some investors that the end of implicit government guarantees on SOE debt could create market instability," it said.
OYO on Friday announced that it has raised a TLB (Term Loan B) funding of $660 million from global institutional investors.
A company statement said that the offer was oversubscribed by 1.7 times and the company received commitments of close to $1 billion from leading institutional investors.
The deal was upsized and increased by 10 per cent to $660 million as the company's fundamentals yielded strong interest from investors despite the virus surge.
The interest margin rate was also lowered by 25 basis points from the Initial Pricing Guidance to LIBOR+825 basis points.
The company will utilise these funds to retire its past debts, strengthen the balance sheet and other business purposes including investment in product technology, it said.
OYO is the first Indian startup to be publicly rated by Moody's and Fitch, two of the leading international rating agencies.
Fitch and Moody's rated OYO's senior secured loan B and B3 (stable outlook), respectively, on the back of the company's sound business model and resilient financial profile with significant potential upside.
This is a milestone transaction as OYO is the first Indian company to raise capital through the TLB route
Abhishek Gupta, Group Chief Financial Officer, OYO, said: "We are delighted by the response to OYO's maiden TLB capital raise that was oversubscribed by leading global institutional investors. We are thankful for the trust that they have placed in OYO's mission of creating value for owners and operators of hotels and homes across the globe.
"This is a testament to the strength and success of OYO's products at scale, our strong fundamentals and high-value potential. OYO is well capitalized and on the path of achieving profitability. Our two largest markets have demonstrated profitability at the slightest signs of industry recovery from the COVID-19 pandemic".
JP Morgan, Deutsche Bank, and Mizuho Securities served as the lead arrangers for this financing.
Rising retail participation in the stock market can enable to create a larger resource pool for financing India's infrastructure requirements, according to an SBI Ecowrap report.
It further said that in case retail investments in the stock market increases to 1 per cent of GDP and further even if half of this can be tapped and channelised into infrastructure spending, then it can cover around 24 per cent of the IBER (other than railways) of the government in FY22.
"Other option for financing infrastructure that is also being explored is the InvIT (Infrastructure Investment Trusts). Government owned Financial Institutions like PFC, REC etc. are setting up InvITs and providing equity capital for new projects. These are all positive developments in the long term financing story of India," said the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
The report noted that with the onset of pandemic and subsequent lockdown, household financial savings had initially showed a significant jump in Q1 FY21, and then a sharp moderation in Q2 FY21. However, the data shows that currency in circulation again increased in Q3 and Q4 FY21.
Furthermore, the markets have progressively improved with Sensex increasing from 28,265 at the beginning of April 2020 to above 52,000 now, it said. This has led to increased investment in stocks and mutual funds in H2 FY21 and this higher retail participation in stock markets may become more of a self-fulfilling prophecy.
The number of individual investors in the market has increased by a whopping 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. Furthermore, another 44.7 lakh retails investor accounts have been added during the two months of this fiscal.
Also, the share of individual investors in total turnover on stock exchange has risen to 45 per cent from 39 per cent in March 2020, as shown, by NSE data.
Within retail, maximum allocation has been to financials, followed by consumer staples, energy and IT. Globally, there has been significant increase in the market capitalization in stock markets across the world in the last one year.
However, in India it has been higher than other major countries. The market capitalization of Sensex has increased by 1.8 times its value one year ago. However, sector-wise 1-year return in Indian stock markets indicates that IT and Materials have performed better and IT.
"This clearly indicates the movement in Indian stock markets is increasingly being clearly interlinked with a supposed infrastructure power play in coming days."
There is also a renewed interest in healthcare stocks and of course financial stocks with stories of Indian financial ecosystem being effectively acting as a conduit of large liquidity finding investment avenues.
Lower rate in other saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market.
Another reason could be the significant increase in global liquidity, it noted. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals' tilt towards the stock market trading.
The Ecowrap report, however, said it is yet to be seen if this increasing retail participation is transitory or the beginning of long-term behavioural change. Additionally, the rise in stock market without significant development in real economy may raise issue of financial stability which as per our financial stability index shows modest improvement in April 2021, but lower than the peak witnessed in December 2020.
However, it is expected to have declined in May 2021.
In yet another acquisition for Tata Steel under the Insolvency and Bankruptcy Code, its wholly owned subsidiary, the Committee of Creditors (CoC) of Rohit-Ferro Tech Ltd has declared Tata Steel Mining as the successful resolution applicant for the insolvent ferro alloy manufacturing company.
The National Company Law Tribunal (NCLT) will have to next approve the resolution proposal.
"Tata Steel Mining Limited (TSML), a wholly owned subsidiary of Tata Steel Limited has been declared as the successful resolution applicant by the Committee of Creditors for acquisition of Rohit Ferro-Tech Limited ('RFT') on June 5, 2021, subject to it obtaining necessary regulatory approvals including approval from the National Company Law Tribunal (NCLT)," Tata Steel said in a regulatory filing.
TSML has accepted the Letter of Intent (LoI) for acquisition of RFT under the Corporate Insolvency Resolution Process (CIRP) of the IBC.
Around 11 a.m., shares of Tata Steel on the BSE were at Rs 1,136.10, higher by Rs 16.20 or 1.45 per cent from its previous close.
The resurgence of Covid-19 will adversely impact the occupancy rates of India's hotel industry for another two-three months, ratings agency ICRA said.
The pandemic's second wave has plunged the sequential occupancy rates of the industry.
Accordingly, the occupancy rate had sequentially dipped from 45 per cent in March 2021 to 32-34 per cent in April 2021 and further to about 25-27 per cent in May 2021.
The occupancy rate had fallen to lows of 13-15 per cent during the first few months of FY2021 and demand was largely limited to Vande Bharat repatriation travelers, medical or other frontline workers, stranded travelers and work-from-hotel guests.
After hotels reopened gradually from Q2 FY2021, demand came from staycations, drive-to-leisure and wedding 'Meetings, Incentives, Conferences, and Exhibitions' (MICE) and occupancies inched closer to 50 per cent in Q4 FY2021 providing a healthy dose of optimism to the industry.
As per ICRA, the recently expanded scope of ECGLS has come as a relief for larger hotel companies.
Under the expanded scope of the scheme, Centre has recently removed Rs 500 crore ceiling cap on loan outstanding for eligibility under the ECLGS 3.0, subject to a maximum assistance of Rs 200 crore or 40 per cent of the borrowings whichever is lower.
Centre had launched the ECLGS in May 2020 to protect the MSME sector from the massive economic upheaval caused by the pandemic.
"About 70 per cent of ICRA's hospitality portfolio applied for moratorium during the first wave," said Vinutaa S, Assistant Vice President and Sector Head, ICRA Ratings.
"Subsequently, most companies availed debt under ECLGS 1.0 and 2.0, and through other long-term debt to shore up their liquidity for meeting operational and financial commitments. Some companies also resorted to equity fund raising from investors and promoters."
According to ICRA, the recent expansion is a welcome move and is expected to benefit larger hospitality companies.
"About 32 per cent of ICRA rated debt is incrementally eligible for loan availment because of the cap removal."
Besides, a severe impact of the pandemic has resulted in a sharp increase in downgrades.
"About 70 per cent of the entities are on negative credit outlook, compared to 92% of the entities with stable outlook in January 2020," ICRA said.
"The industry credit profile is expected to weaken with the second wave derailing the recovery momentum and this could result in more negative rating actions."
Currently, ICRA expects the occupancy and 'RevPAR' to be adversely impacted, at least over the next two-three months because of the second wave.
"The industry 'RevPARs' would be tied to the pandemic timelines, although widespread vaccination rollout would ease the situation to an extent."
"The situation is still evolving and remains a monitorable. Recovery to pre-Covid levels is still at least two years away."