Evergrande makes the coupon payment before the Friday deadline – Sources

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Developer China Evergrande Group paid interest on an offshore bond before a grace period expired on Friday, said two people with direct knowledge of the matter, narrowly averting a catastrophic default for the second time in a week .

Evergrande, once China’s best-selling developer, has liabilities of more than $ 300 billion, fueling concerns about the impact of its fate on the world’s second-largest economy as well as global markets.

The real estate developer, who avoided a default last week by guaranteeing $ 83.5 million for the last-minute interest payment on a bond, was due to make $ 47.5 million in coupon payments to bondholders by Friday.

A default on Friday’s due date would have triggered cross defaults on all of the company’s $ 19 billion bonds in international financial markets, which would have been the second-largest debt default of the emerging market companies around the world.

Evergrande did not respond to Reuters’ request for comment. The individuals declined to be identified due to the sensitivity of the matter.

Reuters was unable to determine the source of the funds used to make the interest payments. Bloomberg News reported earlier this week that Chinese authorities have urged Evergrande founder Hui Ka Yan to pay the developer’s debts out of his personal fortune.

Evergrande shares abandoned their early gains to fall about 0.8% late Friday morning, against a 0.3% drop in the Hang Seng index. The Hang Seng Mainland Properties index fell about 0.9%, while a mainland A-share developer index fell 3.6%.

The developer’s bond prices surged higher on Friday, with its January 2023 11.5% bond up more than 9% and its January 2024 12% bond by nearly 8% on the day, have shown data from Duration Finance.

That still left them trading with discounts over 75% off face value, with the 2023 bond earning almost 190%.

A bond holder said he maintains a negative outlook for the developer despite paying the coupon.

“I just think they buy time at this point,” the bond holder said.

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.

It still has nearly $ 338 million in other offshore coupon payments due in November and December.

The New York Times previously reported that the developer paid interest, citing a person speaking on condition of anonymity.

“Evergrande has done its best to resolve the liquidity issues, but it is a bit difficult to raise enough capital to pay off all the debt,” said Cliff Zhao, chief strategist of China Construction Bank International in Hong Kong.

“I think there (there will be) negotiations between Evergrande and its lenders, so some sort of haircut is still possible. The market still needs time to digest and assess this. “

DEBT CRISIS

Evergrande’s woes snowballed for months, and its dwindling resources in the face of its massive liabilities wiped out 80% of its value, leading some analysts to view default at some point as inevitable.

Even as Evergrande secures the funds to make the payments, other Chinese developers whose fortunes have been affected by market concerns over the Evergrande debt crisis have slipped into formal default.

Fantasia Holdings Group Co Ltd, Sinic Holdings (Group) Co Ltd, China Properties Group Ltd and Modern Land (China) Co Ltd all defaulted on their dollar bonds this month.

Other developers heavily indebted in dollars have offered to extend the maturities of offshore bonds or undertake debt restructuring during a meeting with regulators, sources said.

In a meeting with developers this week, the Chinese National Development and Reform Commission (NDRC) and the State Foreign Exchange Administration asked developers facing large offshore debt maturities to assess the repayment risk and reporting difficulties.

The NDRC also implored developers to meet their offshore debt obligations and maintain their reputation and market order.

“Selective defaults in the offshore market are categorically unacceptable to the authorities, and the NDRC’s clarification this week should reassure offshore investors that they will be treated fairly alongside onshore investors,” said Wei Liang Chang, DBS strategist. , in a customer note.

Even developers who haven’t defaulted have seen their stock and bond prices soar. Chinese Estates Holdings Ltd announced on Friday that it will recognize a total loss of HK $ 1.36 billion in the current fiscal year following the sale of all of its bonds issued by its counterpart Kaisa Group Holdings Ltd.

Concerns about the systemic impact of an Evergrande default have widened spreads on Chinese high-yield dollar debt to record highs as investors demand higher risk premiums.

Investor concerns have also kept the cost of insurance against China’s sovereign debt default high. This cost at the start of the month reached its highest level since the peak of the pandemic in 2020.

BANK EXPOSURE

Founded in Guangzhou in 1996, Evergrande 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.

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

The bank’s exposure to developers is also important.

A leaked 2020 document, called false by Evergrande but taken seriously by analysts, showed the developer’s responsibilities extended to more than 128 banks and more than 121 non-bank institutions.
Source: Reuters (reporting by Svea Herbst-Bayliss, Clare Jim and Andrew Galbraith; additional reporting by Tom Westbrook; writing by Megan Davies and Sumeet Chatterjee; editing by Stephen Coates and Christopher Cushing)


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