Evergrande to pay coupon before Friday deadline – Sources by Reuters – News Couple

Evergrande to pay coupon before Friday deadline – Sources by Reuters

© Reuters. FILE PHOTO: The sign of the Evergrande China Center building in Hong Kong, China, September 23, 2021. REUTERS/Tyron Siu

By Claire Jim, Sophia Herbst Baylis, and Andrew Galbraith

HONG KONG (Reuters) – Developer China Evergrande Group made an interest payment on an external bond before the grace period expired on Friday, avoiding a hardly catastrophic default for the second time in a week, two people with direct knowledge of the matter said.

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

The property developer, which avoided default last week by securing $83.5 million for a last-minute payment of interest on the bond, needed to make $47.5 million in coupon payments to bondholders by Friday.

Failure to pay by Friday’s deadline would have resulted in cross defaults on all of the company’s $19 billion of bonds in international capital markets, in what would have been the world’s second largest emerging market default on corporate debt.

Evergrande did not respond to a Reuters request for comment. The people refused to reveal their identity due to the sensitivity of the matter.

Reuters was unable to determine the source of the funds used to pay the interest. Bloomberg News reported earlier this week that the Chinese authorities had urged the founder of Evergrande, Hui Ka Yan, to pay off the developer’s debts from his personal wealth.

Evergrande shares gave up early gains to fall about 0.8% late Friday morning, versus a 0.3% decline in. The Hang Seng mainland real estate index was down about 0.9%, while the mainland developer’s stock index was down 3.6%.

Data from Duration Finance showed developer bond prices jumped higher on Friday, with its bonds rising 11.5% in January 2023 by more than 9%, and its bonds rising 12% in January 2024 by about 8% on the day.

This has left them trading at discounts of more than 75% of their face value, with the 2023 bond yields close to 190%.

One of the bondholders said it maintained a negative outlook for the developer despite making the coupon payment.

“I just think they’re buying time at this point,” the bondholder said.

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

It still had approximately $338 million in other offshore coupon payments due in November and December.

The New York Times previously reported https://www.nytimes.com/live/2021/10/28/business/news-business-stock-market that the developer had paid interest, citing a person who spoke on condition of anonymity.

“Evergrande has done its best to solve the liquidity issues, but it is a bit difficult to raise enough capital to pay all the debts,” said Cliff Zhao, chief strategist at China Construction Bank (OTC:) International in Hong Kong.

“I think there will be some negotiations between Evergrande and its lenders, so some kind of haircut could still be done. The market still needs some time to absorb and pricing it.”

debt crisis

Evergrande’s problems have worsened over months, and its dwindling resources versus its massive liabilities wiped out 80% of its value, leading some analysts to consider default at some point inevitable.

Even with Evergrande securing funds to make payments, other Chinese developers whose fortunes have been hit by market concerns about Evergrande’s debt crisis have slipped into an official default.

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

Sources said that other developers with large debts in dollars have proposed extending the maturities of external bonds or initiating debt restructuring at a meeting with regulators.

At a meeting with developers this week, China’s National Development and Reform Commission (NDRC) and the State Administration of Foreign Exchange told developers facing large debt maturities abroad to assess repayment risks and report difficulties.

The National Development Commission and developers also appealed to developers to fulfill foreign debt obligations, maintain their reputation and market order.

“Selective defaults in the offshore market are categorically unacceptable to the authorities, and the National Defense Commission (NDRC)’s clarification this week should reassure overseas investors that they will be treated fairly,” DBS strategist Wei Liangchang said in a client note. along with local investors.

Even developers who didn’t default have seen their stakes and bond prices plummet. Chinese Estates Holdings Ltd said Friday that it will make a total loss of HK$1.36 billion in the current fiscal year from selling all of its bonds issued by its peer Kaisa Group Holdings Ltd.

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

Investor concerns have also kept the cost of insuring against default in China’s sovereign debt high. That cost earlier this month reached its highest level since the epidemic peaked in 2020.

bank exposure

Founded in Guangzhou in 1996, Evergrande represents a free era of borrowing and building. But that business model has been frustrated by hundreds of new rules designed to curb developer debt frenzy and boost affordable housing.

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

The exposure of banks to developers is also extensive.

A leaked 2020 document, described as fake by Evergrande but taken seriously by analysts, showed that the developer’s obligations extended to more than 128 banks and more than 121 non-bank institutions.

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