Evergrande unit ‘resolves’ bond payment default fears

Chinese markets fell on their first day of trading this week after a public holiday as concerns grew in global markets over a possible default by property developer Evergrande on an international bond repayment.

But the losses were not as heavy as feared after the real estate company, which has total liabilities of more than $300 billion, said a payment due Thursday for an onshore renminbi-denominated bond had “already been resolved through off-exchange negotiations”.

In a Shenzhen exchange filing, Hengda Real Estate Group Co Ltd said the company would make a coupon payment on its Shenzhen-traded 5.8 per cent September 2025 bond on time on Thursday.

The company did not detail its plan for interest payments, saying only that the bond issue had been resolved through private negotiations.

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The company’s coupon payment totals 232 million renminbi (€30.6 million), according to Refinitiv data.

Evergrande is also due to make an $83.53 million (€71.2 million) coupon payment on an offshore dollar bond on Thursday. The Shenzhen exchange filing did not mention the offshore bond.

Vague statement

The vaguely worded statement injected a fresh dose of uncertainty into financial markets as analysts were left grasping for details. The company didn’t specify how much interest would be paid or when.

The filing has triggered speculation among some analysts that Evergrande struck a deal with noteholders to postpone interest payments without having to label the move a default.

Chinese companies typically pay interest on local bonds through a clearing house; when they arrange to pay noteholders directly, it's often because the companies can't transfer the cash on time or in full, said Li Kai, Beijing-based founding partner of bond fund Shengao Investment.

“Usually it will involve extension, payment in instalment or a reduction in the coupon,” Li said. “This is one of the ways to avoid defaults by distressed companies.”

Investors around the world are scrutinising Evergrande’s every move as they try to gauge whether the property giant’s cash crunch will lead to financial and economic contagion.

While the knee-jerk reaction to Evergrande’s filing on Wednesday was positive, risky assets including S&P 500 Index futures have since pared some of their gains. Calls to Evergrande seeking comment on the interest payment went unanswered.

Restructuring

Billionaire Hui Ka Yan’s developer is widely expected to be on the cusp of one of China’s largest-ever debt restructurings, but the company and Communist Party leaders have so far given few indications on how they plan to resolve a liquidity crisis that roiled markets from Hong Kong to New York this week.

Evergrande missed interest payments due Monday to at least two of its largest bank creditors, according to people familiar with the matter.

Chinese authorities have begun to lay the groundwork for a potential restructuring, assembling accounting and legal experts to examine the finances of the group.

"Evergrande might have arrived at some kind of standstill with onshore holders," said Daniel Fan, a credit analyst at Bloomberg Intelligence. "They might have asked them not to act, pending for negotiation for a rescheduling or something of that sort."

Evergrande has some $19.2 billion in outstanding offshore notes and Rmb53.5 billion in local securities. It owed $669 million in interest through the end of this year including the interest payment due on Thursday on the dollar bond.

There is a 30-day grace period before a missed payment on that dollar note would become a default, according to the bond convenants. – Copyright The Financial Times Limited 2021/Reuters/Bloomberg