The Lowdown Hub

Evergrande bondholders yet to be paid as crucial debt deadline passesChina’s central bank loosens

Evergrande has warned it would struggle to meet $260m in previously undisclosed obligations © Aly Song/Reuters

Thomas Hale in Hong Kong, Sun Yu in Changzhou, Hudson Lockett in Dallas and William Langley in Hong Kong.

Some investors in China Evergrande say they have not received crucial bond payments after the expiry of a 30-day grace period on Monday, as the world’s most indebted developer edges closer to a formal default.

The company, which has delayed several international bond payments over recent months after a liquidity crisis forced it to battle for its survival, had $82.5m in coupons due on Monday — days after it signalled the need to restructure its debt.

One investor with a stake in the bonds, who asked to remain anonymous, said he had not received any funds as of early afternoon Hong Kong time on Tuesday, and was awaiting an announcement over the coming days confirming whether the payment had been made.

“I think it’s unlikely they will have paid, but it’s possible,” he said, pointing to delays in the processing of bond payments.

Another employee of a US asset manager told the Financial Times no payments had been received on Tuesday.

Missed deadlines this week could trigger an official default for Evergrande, months after its initial failure to make an interest payment in late September sparked volatility across global markets.

The company’s problems have prompted a reckoning over the health of China’s real estate sector and widespread expectations of one of the biggest restructurings in the country’s history.

In a sign of the severity of the situation, Beijing on Monday signalled its first substantial policy loosening since the early days of the coronavirus pandemic, in a move widely seen as designed to reassure investors bracing for Evergrande’s possible default.

The Hang Seng Mainland Properties index rose by as much as 4.1 per cent on Tuesday after the country’s central bank said it would free up Rmb1.2tn ($188bn) of liquidity for the banking system by cutting the share of deposits that financial institutions must hold in reserve by 50 basis points.

Evergrande, which has rarely addressed its delayed payments in official filings, said on Friday it had received a demand related to guarantees on $260m of debt.

It added that “there is no guarantee that the group will have sufficient funds to continue to perform its financial obligations” and that it “plans to actively engage with offshore creditors to formulate a viable restructuring plan”.

Rating agency S&P said late on Tuesday the payment demand would not likely constitute a default event yet.

“Regardless, we believe that default looks inevitable for Evergrande,” analysts wrote.

The coupon payments due on Monday and guarantees referred to on Friday, worth a combined $343m, is equivalent to the value of shares sold late last month by Evergrande chair Hui Ka Yan — a transaction that reduced his stake in the group to 68 per cent from 77 per cent. Evergrande has not said if Hui would use the proceeds to help pay down its debts.

The company’s shares rebounded as much as 8.3 per cent on Tuesday morning after it announced the establishment of a risk management committee with members from large state-controlled companies.

Evergrande’s liquidity crisis has over recent months spread across China’s economically important real estate developer sector. Another big developer, Kaisa, had a $400m bond maturing on Tuesday and investors last week turned down an offer to extend its maturity.

“The key question on investors’ minds is whether the government is willing to change its policy stance on the property sector,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The cut to the banks’ reserve requirement ratio sent the Hang Seng China Enterprises index up 1 per cent on Tuesday.

But analysts were sceptical that the measures would feed through to the real economy and property sector quickly after new data showed China’s property slowdown worsened last month.

“We expect liquidity to bottom out in the second quarter of 2022 at the earliest,” said Griffin Chan, a China property research analyst at Citigroup. He added that any easing would mostly benefit safer players in the real estate sector rather than those in urgent need and was “likely not enough” to offset property sales shortfalls.

November sales for China’s largest developers have dropped almost 40 per cent compared with a year ago, according to results from a survey by China Real Estate Information Corp.

“The real estate sector is likely to continue to be a major drag on growth as regulation stifles housing sales and new property investment,” said Xingdong Chen, chief China economist at BNP Paribas. Additional reporting by Xinning Liu in Beijing and Tom Mitchell in Singapore

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