Evergrande debt deadline passes with no sign of payment sources

08-Dec-2021 Intellasia | Reuters | 5:02 AM Print This Post

Some offshore bondholders of China Evergrande Group (3333.HK) did not receive coupon payments by the end of a 30-day grace period, four people with knowledge of the matter said, pushing the cash-strapped property developer closer to formal default.

Failure to make $82.5 million in interest payments that were due last month would trigger cross-default on the firm’s roughly $19 billion of international bonds and put the developer at risk of becoming China’s biggest-ever defaulter a possibility that has loomed over the world’s second-largest economy for months.

Once China’s top property developer, with over 1,300 real estate projects and $300 billion of liabilities, Evergrande has been the poster child of a property crisis in China this year that has already ripped down nearly a dozen smaller developers.

The government has repeatedly said Evergrande’s problems can be contained and moves to boost liquidity in the banking sector along with the firm’s plans to forge ahead with a restructuring of its overseas debt have helped reassure global investors.

“The market already had certain expectations about this (non-payment)”, said strategist Kenny Ng at Everbright Sun Hung Kai Securities. It “just waited to see when this will happen”.

“At the same time, investors are watching the development of Evergrande, including whether it is heading for debt restructuring or its creditor repayment plan,” Ng said.

On Monday, the developer said it had established a risk-management committee that included officials from state entities to assist in “mitigating and eliminating the future risks”.

That came after it earlier said creditors had demanded $260 million and that it could not guarantee funds to repay debt. That prompted authorities to summon its chair and reassure markets that broader risk could be contained.

So far, any Evergrande fallout had been broadly contained in China and with policymakers becoming more vocal and markets more familiar with the issue, consequences of Evergrande’s troubles are less likely to be widely felt, market watchers have said.

State involvement and hope of managed debt restructuring helped lift Evergrande stock as much as 8.3 percent a day after diving 20 percent to a record closing low. Still, it ended Tuesday up only 1.1 percent while its bonds continued to trade at distressed levels.

Notes due November 6, 2022, one of two tranches with a coupon payment deadline that passed Monday midnight in New York traded at 18.282 cents on the dollar, Duration Finance data showed, little changed from a day earlier.

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Founded in 1996, Evergrande epitomised a freewheeling era of borrowing and building. That business model was scuttled, however, by hundreds of new rules designed to curb developers’ debt frenzy and promote affordable housing.

Evergrande became just one of a number of developers subsequently starved of liquidity, prompting offshore debt default and credit-rating downgrades, and a plunge in the value of developers’ stocks and bonds.

Smaller peer Kaisa Group Holdings Ltd (1638.HK) China’s largest offshore debtor among developers after Evergrande also risks defaulting on a $400 million bond maturing on Tuesday having failed to make a deal with bondholders.

To avoid an overall default, bondholders owning over 50 percent of the 6.5 percent notes due December 7 sent Kaisa draft terms of forbearance late on Monday to work toward a solution, a person with direct knowledge of the matter old Reuters. Kaisa started discussing forbearance with bondholders last week, the person said.

Another person with direct knowledge said discussions are at preliminary stages and that it will take time to finalise terms.

The people declined to be identified as the information was confidential.

Responding to Reuters’ request for comment, Kaisa said it is open to discussion on forbearance, without elaborating.

Sources previously told Reuters that the bondholders, had offered Kaisa $2 billion in funding last month but that no major progress on the offer was made.

Shares of Kaisa the first Chinese developer to default on an offshore bond in 2015 rose 1.1 percent on Tuesday.

https://www.reuters.com/world/china/developer-china-evergrandes-shares-set-rise-66-restructuring-looms-2021-12-07/

 

Category: China

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