Property Developer Evergrande Avoids Default With a Last-Minute Payment, According to Chinese Media
China Evergrande Group pulled back from the brink of default by reportedly paying a bond coupon before this weekend’s deadline, the latest twist in a months-long drama that has captivated global investors.
The company wired the $83.5 million payment and bondholders will receive the funds before Saturday, state-backed newspaper Securities Times said, citing “relevant channels”. The bond coupon had a grace period of 30 days after the missed payment. A representative from Evergrande declined to comment.
For months speculation has swirled about a default, inflaming credit-market contagion among cash-strapped builders and degrading confidence within a Chinese real-estate market that accounts for over a quarter.
The development suggests the embattled property developer may put a bigger-than-anticipated priority on dollar-bond obligations as it struggles to raise funds to meet payments owed to banks, suppliers and holders of onshore investment products. Evergrande was encouraged by the financial regulators not to default on its dollar bond obligations in the immediate future. Instead, they should focus on building properties and repaying investors.
“The payment looks like an attempt to kick the can down the road, given its tight liquidity situation,” said Wu Qiong, executive director at BOC International Holdings. “Nevertheless, the dollar bond interest payment is positive and buys the time Evergrande needs for asset sales, strengthening the base-line case of an orderly restructuring.”
The news was welcomed by markets, and shares in Hong Kong’s Chinese developers surged. Evergrande’s dollar bonds were indicated up as much as 3 cents on the dollar, according to credit traders. The shares of Evergrande climbed by 5% in Hong Kong.
Recent talks to sell a share in an unlisted unit worth $2.6 billion have collapsed, highlighting the difficulties the company has with raising capital through asset sales. Evergrande stated Wednesday night that property sales fell by 97% in peak season, and it might not be able meet its financial obligations. It has liabilities of more than 300 billion dollars.
Many challenges lie ahead. Evergrande faces a large wall of maturing debt with $7.4billion due next year in offshore and onshore bonds. This year, it will have to pay the interest on additional four-dollar notes.
Payment of the coupon may ease concern over the health of China’s property sector. Indebted developers have been subject to a government crackdown and cooling measures that has led to a drop in home sales. This has also impacted on economic growth. As junk bond yields rose to a decade high, at least three developers declared bankruptcy on dollar debt.
The gauge for Chinese real estate firms rose 2.1%. Sunac China Holdings Ltd. rose 9%
Regulators in Beijing are trying to reassure markets that the world’s second-largest economy can weather the crisis at Evergrande and its smaller rivals, with Vice Premier Liu He becoming the highest-ranking official to assure that risks in the property market are controllable.
It appears that Chinese authorities are “behind all this to make sure that we can avoid a spillover into the broader economy and also outside of China,” Hans Goetti, founder and chief executive officer of HG Research, said on Bloomberg TV. “This sends a signal that China is not interested in making this a bigger issue, especially for foreign holders in this case. I think that’s good news.”
Still, without the pressure of a default in the offing Evergrande’s offshore bondholders may have a little less room to negotiate. Cross-default clauses would have been activated and investors who hold other bonds could choose to accelerate payments.