China Evergrande aligns funds to pay interest and avoid default – source
- Evergrande remits the funds for the interest payment to the source trustee
- The company faced the end of the 30-day grace period for payment on October 23
- Evergrande shares jump and generate gains for other developers
- Next 30-day grace period expires October 29 for September 29 payment
HONG KONG / SHANGHAI, Oct.22 (Reuters) – China Evergrande Group (3333.HK) has provided funds to pay interest on a US dollar bond, a person with first-hand knowledge of the matter told Reuters on Friday. days before a deadline that would have seen the developer plunge into a formal default.
The person said Evergrande paid $ 83.5 million into a trust account at Citibank on Thursday – as reported earlier on Friday by the state-backed Securities Times – allowing it to pay all bondholders before the end of payment grace period on October 23.
News of the remittance will likely bring relief to investors and regulators worried about the wider fallout from a default in global financial markets, reassuring Chinese officials who have said creditors’ interests will be protected.
Still, the developer, grappling with $ 300 billion in liabilities, will have to make payments on a series of other bonds, with the next major deadline to avoid the default being October 29 and little is known if he is able. to pay.
“I guess that means they also plan to pay off the offshore bond coupons due by the 29th,” said analyst Travis Lundy of Quiddity Advisors in Hong Kong.
“There’s no point paying for this one if you plan on not paying the next six days later, but given the cash flow difficulties the company has reported, it’s not clear how long it will be able to continue. . “
It was not immediately clear how cash-strapped Evergrande was able to raise funds to pay bondholders or if bondholders have already received the money.
Evergrande did not respond to Reuters’ request for comment. Citibank declined to comment. The person aware of the case was not authorized to speak to the media and therefore declined to be identified.
The news of the funds comes a day after financial information provider REDD said Evergrande was given more time to pay off a defaulting bond it was guaranteeing, issued by Jumbo Fortune Enterprises.
“They seem to be avoiding a short-term default and it’s a bit of a relief that they’ve managed to find liquidity,” said a Hong Kong-based debt restructuring lawyer representing some bondholders, who didn’t. did not want to be identified.
“But yet, Evergrande needs to restructure its debt. This payment could be a way for them to get some kind of buy-in with stakeholders before the big work involved in restructuring.”
Evergrande, which has nearly $ 20 billion in offshore debt, missed coupon payments totaling nearly $ 280 million on its dollar bonds on September 23, September 29 and October 11, starting 30-day grace periods for each.
Subsequent non-payment would result in formal default and trigger cross-default provisions for its other dollar obligations.
Evergrande’s next payment deadline is October 29 with the 30-day grace period expiring on its September 29 coupon.
Evergrande dollar bond prices surged on Friday, with its April 2022 and 2023 banknotes surging more than 10%, Duration Finance data showed, although they were still trading at deeply distressed levels about a quarter of their face value.
Its shares rose to 7.8%, a day after trading resumed after more than two weeks of stoppage pending the announcement of a sale of a stake in its property management unit, which has been deleted this week.
Evergrande’s woes have spilled over into China’s $ 5,000 billion real estate sector, which makes up a quarter of the economy by some measures, with a series of announcements of defaults, downgrades and collapses in stocks. corporate bonds.
In the latest such move, Fitch Ratings on Thursday downgraded the long-term default rating of foreign currency issuers of Sinic Holdings (Group) Co Ltd (2103.HK) to “restricted default” from “C”, because the developer failed to repay its $ 250 million bills. due October 18th.
Still, the Evergrande news helped the Hang Seng Mainland Property Index (.HSMPI) rise by more than 4% against a 0.25% gain in the larger Hang Seng Index (.HSI). .
It also helped Kaisa Group Holdings Ltd (1638.HK), Evergrande’s smaller counterpart, whose dollar bonds have skyrocketed.
Kaisa was the first Chinese developer to default in 2015 and the Evergrande crisis has put him back in the spotlight.
In continental markets, the CSI300 real estate index jumped 6.5%, and a broad real estate index (.CSI000006) was forecasting its biggest gain in nearly two months.
When asked if he would step in to help his rival ease his liquidity crunch, Chairman Yu Liang of the country’s third-largest developer, China Vanke Co Ltd (000002.SZ), said developers should first ensure their own safety.
“Everyone is feeling the cold as ‘winter’ arrives for the industry… It is still not clear whether we can get through this winter safely,” Yu said Friday at a company forum.
Evergrande’s woes had been snowballing for months. The reduction in resources against more than $ 300 billion in liabilities had wiped out 80% of its value.
Founded in Guangzhou in 1996, the developer embodied an era of freewheeling borrowing and construction. But that business model has been scuttled by hundreds of new rules designed to curb the debt frenzy of developers and promote affordable housing.
Analysts said any prospect of demise would raise questions about what would happen to Evergrande’s more than 1,300 ongoing real estate projects in more than 280 cities, and any impact on the wider real estate industry.
The bank’s exposure to developers is also important. A leaked 2020 document, labeled as fake by Evergrande but taken seriously by analysts, showed the company’s liabilities stretched to more than 128 banks and more than 121 non-bank institutions.
“Given that we have little clarity on how the bank financing of stalled real estate projects is going, but we know that project pre-sales are dropping sharply, the onshore business is unlikely to provide liquidity. to Evergrande in the short term, ”Quiddity’s said. Lundy.
Reporting by Clare Jim and Scott Murdoch in Hong Kong, Samuel Shen and Andrew Galbraith in Shanghai, Anshuman Daga and Tom Westbrook in Singapore and Marc Jones in London; Writing by Sam Holmes; Editing by Christopher Cushing
Our standards: Thomson Reuters Trust Principles.