China Evergrande will make crucial bond payment
to avert looming default – reports
The struggling property giant has wired $83.5m to
creditors, Chinese media says, but deadlines loom for another $193m in payments
Martin
Farrer and agencies
Thu 21 Oct
2021 22.29 EDT
The
troubled property company China Evergrande Group has come up with the money to
pay a $83.5m bond interest payment that it missed in September, according to
reports.
The
company, which has debts of around $305bn, wired the $83.5m payment and
noteholders will receive it before Saturday, China’s state-backed newspaper
Securities Times said on Friday, citing relevant channels, according to
Bloomberg.
Reuters
also reported that Evergrande had deposited funds to a trustee account on
Thursday night before the expiration of a 30-day grace period for the payment,
citing a source.
Evergrande,
which is China’s second-biggest property developer, sparked alarm on global
financial markets when it announced in September that it might not be able to
pay its many creditors ranging from homebuyers, building contarctors, banks and
offshore investors.
It missed
the $83.5m bond repayment on 23 September but had a 30-day grace period to come
up with the money.
It then
missed payments worth another $193m on 29 September and 11 October. They also
allowed for a 30-day grace period for payment.
An
announcement this week that a deal to sell a 50.1% stake in its property
services arm for $2.6m had fallen through increased concern that it might go
into default. It also failed to sell its Hong Kong headquarters for $1.7bn.
A string of
Chinese officials in recent days have sought to reassure investors, saying that
creditors’ interests would be protected. Market participants nevertheless
expressed shock at news of the payment.
“This is a
positive surprise,” said James Wong, portfolio manager at GaoTeng Global Asset
Management, adding many 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”.
Jeffrey
Halley, senior market analyst at Oanda in Siungapore, also said it was positive
news but it was hard to predict what would happen with Evergrande given its
enormous debts.
“It will
still be a headwind for China markets because there’s just so many variables,
so many ways this story could wash out,” he said. “I think this will be a
short-term positive but I don’t think this will change the overarching fears
about what the true state of the sector or the China economy is at the moment.”
Evergrande’s
dollar bonds surged in value on Friday morning, with its April 2022 and 2023 notes
jumping more than 10%, according to data provider Duration Finance.
Evergrande’s
shares rose about 4%, a day after the resumption of trade after a more than
two-week suspension pending the announcement of a scrapped stake sale in its
property management unit.
The Hang
Seng mainland properties index surged more than 5% in early trade, against a
0.13% rise in the broader Hang Seng index.
In an
announcement about the failed asset sales on Wednesday, Evergrande did offer a
clue about the bond repayment. It noted pointedly that the group “has a 30-day
grace period to pay interest after the interest becomes due under its US
dollar-denominated notes” and that the grace periods “have not expired’.
However, in
the same statement it repeated an admission first made to the stock market in
September that it was struggling under the weight of its huge debt burden,
brought on by the loss of funding sources and a rapidly cooling housing market.
“In view of
the difficulties, challenges and uncertainties in improving its liquidity,
there is no guarantee that the group will be able to meet its financial
obligations under the relevant financing documents and other contracts,” the
statement said.
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