September 23, 2021
By Anshuman Daga, Clare Jim and Tom Westbrook
HONG KONG/SINGAPORE (Reuters) – Some holders of China Evergrande Group’s dollar bonds have given up hope of getting a coupon payment by a key Thursday deadline and expect the property developer to provide more information in the coming month, a source familiar with the matter said.
Evergrande, which epitomises the borrow-to-build business model and was once China’s top-selling developer, has run into trouble over the past few months as Beijing tightened rules in the property sector to rein in debt levels and speculation.
Global markets are now on tenterhooks ahead of Evergrande’s payment obligations as there are fears its difficulties could pose systemic risks to China’s financial system, and possibly spill over to other markets.
Evergrande is due to pay $83.5 million in interest on a $2 billion offshore bond on Thursday and also has a $47.5 million dollar-bond interest payment next week.
Both would default if the company, which has outstanding debt of $305 billion, fails to settle the interest within 30 days of the scheduled payment dates.
The company has yet to make an announcement about its plans for Thursday’s offshore bond coupon payment and a company spokesperson did not respond to requests for comment.
A person familiar with the matter said some bondholders were not holding out for any payment on Thursday but did expect Evergrande to provide some clarity over the next month or so.
Earlier on Thursday, Bloomberg Law reported that Chinese regulators had asked Evergrande executives to avoid a near-term default on its dollar bonds and to communicate proactively with bondholders, citing people familiar with the matter.
“They don’t want a default right now,” said Connor Yuan, the head of emerging market flow credit trading for Asia at Goldman Sachs. “Given there is a 30-day grace period, I think today it’s very likely the coupon won’t be made but it is possible that they try to get a deal done in the next 30 days.”
The Wall Street Journal reported separately on Thursday that Chinese authorities were asking local governments to prepare for the potential downfall of Evergrande, China’s second-biggest property developer, citing officials familiar with the talks.
A spokesperson for Evergrande, China’s second-biggest property developer, declined to comment on the two reports.
SHARES BOUNCE BACK
Investors worry that the Evergrande rot could spread to creditors including banks in China and abroad, though analysts have been downplaying the risk that a collapse would result in a “Lehman moment”, or a systemic liquidity crunch.
Still, central bankers say they are keeping a close eye on Evergrande. The Bank of England said on Thursday that it did not expect the situation to go badly wrong and was cautiously optimistic Beijing would avoid any major issues.
Switzerland’s central bank, meanwhile, said Evergrande should not be dismissed as a small, local problem.Shares in Evergrande rose nearly 18% on Thursday after it said it had resolved the coupon payment for one of its domestic, onshore bonds, though the stock is down more than 80% this year.
Shares in Evergrande Property Services rose nearly 8% and relief spread to mainland property stocks listed in Hong Kong. Country Garden, China’s largest developer, climbed 7%, Sunac China jumped 9% and Guangzhou R&F Properties ended 7.5% higher.
Evergrande Chairman Hui Ka Yan urged his executives late on Wednesday to ensure the delivery of quality properties and the redemption of its wealth management products, which are typically held by millions of retail investors in China.
He did not mention the company’s offshore debt, however.
The WSJ said local governments had been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions.
They have also been ordered to talk to local state-owned and private property developers to prepare to take over projects and set up law-enforcement teams to monitor public anger and “mass incidents”, a euphemism for protests, it said.
Analysts said the moves by Beijing underscored the pressure on Evergrande, whose liabilities run to 2% of China’s gross domestic product, to contain the fallout from its credit crunch and protect mom-and-pop investors over professional creditors.
“Assuming this situation goes the way of a debt restructuring … we think the retail investor nature of the wealth management products would be prioritised for social stability,” said Ezien Hoo, credit analyst at OCBC Bank.
Foreign investors, who hold paper issued by Evergrande’s offshore entities, might find it harder to get paid as they had “lower bargaining power versus other lenders closer to the assets”, he said.
‘ALL MY SAVINGS’
Oscar Choi, founder and chief investment officer at Oscar and Partners Capital Ltd, said Evergrande was wary of enflaming social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their losses.
Once those priorities had been met, Evergrande would talk to its other creditors, he said, adding: “Otherwise a few hundred thousand people will fight with the government.”
Fitch Ratings said on Sept. 16 that it had cut its 2021 economic growth forecast for China to 8.1% from 8.4%, citing the impact of the slowdown in the country’s property sector on domestic demand.
Underscoring the scramble to avoid contagion, Chinese Estates Holdings, Evergrande’s second-biggest shareholder, said on Thursday it had sold $32 million of its stake and planned to sell the rest.
Some analysts say it could take weeks for investors to have any clarity about how the Evergrande 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 would likely 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 said.
At an eerily quiet construction site in eastern China, worker Li Hongjun says Evergrande’s crisis means he will soon run out of food while Christina Xie, who works in the southern city of Shenzhen, fears Evergrande has swallowed her savings.
“It’s all my savings. I was planning to use it for me and my partner’s old age,” said Xie. “Evergrande is one of China’s biggest real estate companies … my consultant told me the product was guaranteed.”
(Reporting by Anshuman Daga in Singapore, Clare Jim in Hong Kong, Andrew Galbraith in Shanghai and Karin Strohecker in London; Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Stephen Coates and David Clarke)
Source Link Evergrande bondholders don’t expect coupon payment on Thursday – source
