There’s growing alarm that the liquidity crisis at Evergrande will spill over to other developers as President Xi Jinping maintains measures to cool the property market. Fears of contagion risks intensified this week after a surprise default by Fantasia Holdings Group Co. spurred a dramatic selloff in the offshore market. That sent yields on China dollar junk bonds to 16.9%, the highest in about a decade, while Evergrande’s dollar bond prices sank to a record low.

The nation’s developers are facing a “triple whammy” with dwindling access to offshore financing, “catastrophic” September pre-sales and a limited onshore banking market, distressed debt veteran Michel Lowy said in a Bloomberg Television interview Friday.

That could spark a “large wave of defaults” if the offshore market remains shut for riskier borrowers going into next year, said Lowy, chief executive officer of his alternative asset manager SC Lowy.

For dollar bonds, the risk is that the increase in yields becomes indiscriminate and makes it near-impossible for developers to refinance maturing debt, triggering a succession of missed payments across the industry.

Sales of fresh dollar debt from high-yield or unrated property firms in the third quarter fell to their lowest since late 2017. Such companies need to refinance or repay some $5.3 billion of outstanding dollar bonds maturing the rest of this year, according to Bloomberg-compiled data, followed by $10.1 billion in the first quarter of 2022.

“Ultimately it’s a liquidity game,” said Lowy. “How many months can you survive until at some point the central government will relent and start releasing liquidity pressures on developers?” The Hong Kong-based firm specializing in distressed and high-yield debt has been adding to its positions in Chinese property firms.

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