Struggling Chinese real estate giant avoids default for now

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  • Evergrande sends $ 83.5million for last minute payment – source
  • Chinese real estate company faces looming debt maturities
  • The next 30-day payment grace period expires on October 29
  • Global financial markets in turmoil

HONG KONG / SHANGHAI, Oct. 22 (Reuters) – China Evergrande Group (3333.HK) appears to have avoided a default with a last-minute bond coupon payment, a source said on Friday, buying it an extra week for tackle a looming debt crisis on the world’s second-largest economy.

The real estate developer sent $ 83.5 million to a Citibank trust account on Thursday, the person with knowledge of the matter told Reuters, allowing him to pay interest on a US dollar bond due by Saturday.

This relieved investors and regulators worried about the fallout for global markets and bolstered Chinese officials’ assurances that creditors would be protected. Read more

Still, the world’s most indebted real estate company – with more than $ 300 billion in liabilities – must make payments on a series of other bonds, with the next major deadline to avoid default being October 29.

With little information on his ability to pay and real estate sales dropping 30% in the past 12 months, there is deep skepticism about Evergrande’s ability to weather the crisis.

The company, once China’s best-selling real estate developer, did not respond to a request for comment.

Citibank declined to comment.

Evergrande’s woes snowballed for months, and his dwindling resources in the face of his massive liabilities wiped out 80% of his value. Read more

Founded in Guangzhou in 1996, the developer embodied an era of freewheeling borrowing and construction. But that business model has been scuttled by hundreds of new rules designed to curb the debt frenzy of developers and promote affordable housing.

Evergrande chairman Hui Ka Yan was quoted by the state-backed Securities Times on Friday as saying the developer would cut real estate sales to around 200 billion yuan ($ 31 billion) per year to revamp its activities.

“A LITTLE RELIEF”

It was not clear how cash-strapped Evergrande was able to raise funds to pay the bondholders or if any of them had already received the money. Evergrande then needs to find $ 47.5 million by October 29, and has nearly $ 338 million in other offshore coupon payments coming in November and December. Read more

“While obviously positive, the coupon payment does not address general concerns about Evergrande’s sustained liquidity until the first maturity in the second quarter of 2022 and beyond,” said John Han, partner at the firm of Kobre & Kim lawyers in Hong Kong.

“It just goes to show that the company is not yet ready for the house to fall completely due to a massive cascade of cross faults. It takes time for what’s next.” Read more

If he fails to make next week’s payment, or any other final due in the coming weeks, defaults would be triggered on all of his $ 19 billion in financial market bonds. international.

It would be the second biggest emerging market corporate flaw after the Venezuelan state oil company.

News of the funds transfer came a day after financial information provider REDD said Evergrande was given more time to pay off a defaulting bond it was guaranteeing, issued by Jumbo Fortune Enterprises. Read more

The company logo can be seen at the headquarters of the China Evergrande Group in Shenzhen, Guangdong Province, China on September 26, 2021. REUTERS / Aly Song

Read more

“They seem to be avoiding a short-term default and it’s a bit of a relief that they’ve managed to find liquidity,” said a Hong Kong-based debt restructuring lawyer representing some bondholders. .

“This payment could be a way for them to get some kind of buy-in with stakeholders before the big restructuring work is involved.”

Evergrande missed coupon payments totaling nearly $ 280 million on its dollar bonds on October 23, 29 and 11, starting 30-day grace periods for each. Read more

MARKET MOVEMENTS

Evergrande dollar bond prices surged on Friday morning after the move was announced, with its April 2022 and 2023 banknotes jumping more than 10%, Duration Finance data showed, although it was trading. still at deeply distressed levels of less than a quarter of face value.

Those gains evaporated in Asia on Friday afternoon, however, causing several other company bonds to fall by more than 6%.

Evergrande shares rose 7.8% before closing 4.3% higher, but still ended a shortened week down 8.8%.

Evergrande’s woes have spilled over into China’s $ 5,000 billion real estate sector, which makes up a quarter of the economy by some measures, with a series of announcements of defaults, downgrades and collapses in securities. corporate bonds. Read more

Chinese real estate companies could now be excluded from offshore debt markets until early next year. Read more

Still, Friday’s news helped the Hang Seng Mainland Property Index (.HSMPI) rise 3.3%.

In continental markets, the CSI300 real estate index finished up 2.4%, and a broad real estate index (.CSI000006) added 2%.

SAFETY FIRST

When asked if he would step in to help his rival ease his liquidity crunch, the chairman of China’s third largest developer, China Vanke Co Ltd (000002.SZ), said developers should first ensure their own safety.

“Everyone is feeling the cold as winter approaches for the industry,” Chairman Yu Liang said at a company forum on Friday.

Any prospect of Evergrande’s demise raises questions about the more than 1,300 real estate projects it has in some 280 cities.

The bank’s exposure to developers is also important.

A leaked 2020 document, labeled as fake by Evergrande but taken seriously by analysts, showed the company’s liabilities stretched to more than 128 banks and more than 121 non-bank institutions.

“Given that we have little clarity on how bank financing is going for stalled real estate projects, but we know that project pre-sales are dropping sharply, onshore activity is unlikely to provide liquidity at Evergrande in the short term, ”Quiddity’s said. Lundy.

Reporting by Clare Jim and Scott Murdoch in Hong Kong, Samuel Shen and Andrew Galbraith in Shanghai, Anshuman Daga and Tom Westbrook in Singapore and Marc Jones in London; Writing by Sam Holmes and Andrew Cawthorne; Editing by Christopher Cushing and David Clarke

Our Standards: Thomson Reuters Trust Principles.


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