China Evergrande Group has supplied funds to pay interest on a US dollar bond, two days before a deadline that would have seen the developer plunge into formal default.
Evergrande remitted $83.5 million to a trustee account at Citibank on Thursday – to pay all bondholders before the payment grace period ends on Saturday, as reported on Friday by state-backed Securities Times and confirmed by a person with direct knowledge of the matter to Reuters.
News of the remittance will likely bring relief to investors and regulators worried about a default’s wider fallout in global financial markets, adding to reassurance from Chinese officials who have said creditors’ interests would be protected.
Still, the developer will need to make payments on a string of other bonds.
“They seem to be avoiding short-term default and it’s a bit of a relief that they have managed to find liquidity,” a Hong Kong-based debt restructuring lawyer representing some bondholders said.
“But still, Evergrande does need to restructure its debt. This payment might be a way for them to get some sort of buy-in with stakeholders before the heavy work needed on the restructuring.”
Evergrande did not respond to Reuters’ request for comment. Citibank declined to comment. The person with knowledge of the matter was not authorised to speak with media and so declined to be identified.
The remittance comes after financial information provider REDD said on Thursday that Evergrande had secured more time to pay a defaulted bond it guaranteed, issued by Jumbo Fortune Enterprises.
Two More Deadlines Loom
“This is a positive surprise,” said James Wong, portfolio manager at GaoTeng Global Asset Management, who had expected a default.
The news would boost bondholders’ confidence, he said, as “there are many coupon payments due ahead. If Evergrande pays this time, I don’t see why it won’t pay the next time.”
Evergrande missed coupon payments totalling nearly $280 million on its dollar bonds on September 23, September 29 and October 11, beginning 30-day grace periods for each.
Subsequent non-payment would result in formal default and trigger cross-default provisions for its other dollar bonds.
Evergrande’s next payment deadline is October 29 with the expiration of the 30-day grace period on its September 29 coupon.
Shares, Bond Prices Surge
Evergrande’s dollar bond prices surged on Friday, with its April 2022 and 2023 notes jumping more than 10%, data from Duration Finance showed, though they still traded at deeply distressed levels of around a quarter of their face value.
Its shares rose as much as 7.8%, a day after trade resumed following a more than two-week halt pending the announcement of a stake sale in its property management unit, which was scrapped this week.
Evergrande’s woes have reverberated across the $5 trillion Chinese property sector, which accounts for a quarter of the economy by some metrics, with a string of default announcements, rating downgrades and slumping corporate bonds.
In the latest such move, Fitch Ratings on Thursday cut Sinic Holdings (Group) Co Ltd’s long-term foreign currency issuer default rating to “restricted default” from “C” as the developer failed to repay its $250 million notes due October 18.
Still, Evergrande news helped the Hang Seng mainland properties index surge more than 4% versus a gain of 0.25% in the broader Hang Seng index.
In mainland markets, the CSI300 Real Estate index jumped as much as 6.5%, and an index tracking the broader property sector was eyeing its biggest gain in nearly two months.
Evergrande business model
Evergrande’s woes had been snowballing for months. Dwindling resources set against more than $300 billion of liabilities had wiped out 80% of its value.
Founded in Guangzhou in 1996, the developer epitomised a freewheeling era of borrowing and building. But that business model has been scuttled by hundreds of new rules designed to curb developers’ debt frenzy and promote affordable housing.
Analysts said any prospect of demise would raise questions over what would happen to the more than 1,300 real estate projects Evergrande has ongoing in over 280 cities, and any impact the wider property sector.
Bank exposure to developers is also extensive. A leaked 2020 document, branded a fake by Evergrande but taken seriously by analysts, showed the company’s liabilities extending to more than 128 banks and over 121 non-banking institutions.
“Given that we have little clarity on how bank financing is going for stalled real estate projects, but we know that project pre-sales are down a lot, the onshore business is unlikely to be supplying cash to Evergrande near-term,” analyst Travis Lundy at Quiddity Advisors in Hong Kong said.
- Reuters with additional editing by Jim Pollard
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