China’s Evergrande faces key deadline, investors await outcome

September 23, 2021

HONG KONG/NEW YORK (Reuters) – China’s embattled property developer Evergrande faced a Thursday deadline to pay interest on one of its dollar bonds, in a crucial moment for global investors worried that its malaise could spread beyond the country’s property sector.

Global markets reacted with relief on Wednesday when the People’s Bank of China’s injected 90 billion yuan ($13.9 billion) into the banking system and an Evergrande unit said it had “resolved” a coupon payment on an onshore bond.

But it faces $83.5 million in dollar-bond interest payments due on Thursday on a $2 billion offshore bond. And more payments are coming due next week, with a $47.5 million dollar-bond interest payment due.

Evergrande, China’s biggest property developer, ran into trouble over the past few months as Beijing tightened regulations in its property sector to rein back too much debt and speculation. With $305 billion in liabilities, Evergrande has found itself struggling to meet its debt obligations and investors worry that the rot could spread to creditors including banks in China and abroad. Some analysts say it could take weeks for investors to have any clarity about how the situation will resolve.

“The company could restructure its debts but continue in operation, or it could liquidate,” wrote Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. In either case, investors in the company’s financial instruments likely would suffer some losses, he wrote.

“In the event of a liquidation, however, Chinese and global investors could decide that the contagion could spread beyond China,” he added.

A group of Evergrande bondholders recently selected investment bank Moelis & Co and law firm Kirkland & Ellis as advisers on a potential restructuring of a tranche of bonds, two sources close to the matter previously said.

The advice focuses on around $20 billion in outstanding offshore bonds in the event of non-payment, one of the sources said at the time.

Analysts have been downplaying the risk that a collapse threatens a “Lehman moment”, or liquidity crunch, which freezes the financial system and spreads globally.

U.S. Federal Reserve Chair Jerome Powell said on Wednesday that Evergrande’s problems seem particular to China and that he did not see a parallel with the U.S. corporate sector.

“In terms of the implications for us, there’s not a lot of direct United States exposure. The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing,” Powell told reporters after the Fed’s policy meeting.

($1 = 6.4583 Chinese yuan renminbi)

(Reporting by Karen Pierog in Chicago, Anshuman Daga in Singapore, Andrew Galbraith and Samuel Shen in Shanghai. Additional reporting by Hideyuki Sano in Tokyo, Clare Jim in Hong Kong and Gabriel Crossley in Beijing and Ira Iosebashvili in New York. Writing by Megan Davies; Editing by Stephen Coates)

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