China Evergrande shares, bonds dive further on default worries

September 9, 2021

By Clare Baldwin and Andrew Galbraith

SHANGHAI/HONG KONG (Reuters) -Indebted China Evergrande Group’s shares and bonds came under fresh pressure on Thursday after reports that it would suspend interest payments due on loans to two banks later this month, and also payments to its wealth management products.

Regulators have warned that Evergrande’s 1.97 trillion yuan ($304.7 billion) of liabilities could spark broader risks to China’s financial system if not stabilised.

The company, China’s second-largest property developer, said last September its liabilities involve more than 128 banks and over 121 non-banking institutions.

The Shenzhen stock exchange temporarily halted trading in two Evergrande exchange-traded bonds after their prices sank more than 20%. After resuming trade, Evergrande’s 6.98% January 2023 bond fell more than 30%, triggering a second trading freeze.

They are now trading at roughly a third of their face value.

Evergrande’s dollar bonds due June 2025 dropped about half a cent to 24.709, while the Hong Kong-listed stock dropped more than 10% to HK$3.32, its lowest since July 8, 2015, before trimming losses to end down 4.3%. Evergrande shares have tumbled more than 76% this year.

Financial information provider REDD reported on Wednesday, citing sources briefed by banks, that Evergrande had told two banks it will suspend interest payments due on loans to the banks on Sept. 21, pending further instructions about an extension plan.

Evergrande has also delayed payments to several trust firms, REDD said, and it might suspend all payment on its wealth management products starting on Wednesday.

Evergrande declined to comment on the report.

Recent days have seen a series of downgrades by rating agencies including Fitch, Moody’s and China Chengxin International (CCXI) – the last of which made its yuan bonds unusable as collateral for repo financing.

Fitch Ratings cut the ratings of Evergrande and two of its subsidiaries to “CC” on Wednesday, adding a default appears probable, due to tight liquidity, declining contracted sales, pressure to address delayed payments to suppliers and contractors, and limited progress on asset disposals.

Fitch estimated the company faces bond interest payments of $129 million in September alone and $850 million before the end of the year. Refinitiv data shows nearly $7.4 billion worth of onshore and offshore bonds coming due next year.

Late last month, Evergrande warned of liquidity and default risks, and said it would adjust development timetables for projects, “vigorously” promote sales, renew or extend borrowings, dispose of equity interests and assets as well as introduce new investors to the group and its units to imrpove cashflow and reduce debt.

($1 = 6.4605 Chinese yuan)

(Reporting by Andrew Galbraith in Shanghai and Clare Jim in Hong Kong; Editing by Shri Navaratnam, Michael Perry and Kim Coghill)

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