Evergrande’s last-minute payment averts default

Singapore/Hong Kong — Cash-strapped developer China Evergrande Group once again averted a destabilising default at the last minute, with a source on Thursday saying several bondholders had received overdue coupon payments.

Evergrande, the world’s most indebted developer, has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300bn in liabilities, $19bn of it in dollar bonds.

Chinese media outlet Cailianshe reported several bondholders had received interest payments of the three bond tranches that had a total of more than $148m due in October.

The payments were made at the end of a 30-day grace period that ended on Wednesday, and were the third reprieve for the company in the past month. Two separate offshore coupon payments that were due in late September and for which the grace periods ended in late October were also paid with the deadline perilously close.

A failure to pay would have resulted in a formal default by the company and triggered cross-default provisions for other Evergrande dollar bonds, exacerbating a debt crisis looming over the world’s second-largest economy.

“The near-term fix seems to be happening but there’s a long way to go before this issue gets sorted out. These are early days,” said the source with knowledge of the matter, referring to Evergrande. The source declined to be named without authorisation to talk to the media.

Evergrande, which is at the centre of a deepening liquidity squeeze in China’s $5-trillion property sector, did not respond to Reuters’ request for comment on its latest bond coupon payment.

Although the developer managed to avoid a default, woes in the property sector showed no signs of abating with a wall of debt coming due.

Evergrande has coupon payments totalling more than $255m due on December 28. It has come under pressure from its other creditors at home and a stifling funding squeeze has cast a shadow over hundreds of its residential projects.

Investor focus is now also shifting to other cash-strapped developers that have a string of offshore payments coming due in the short term, including Kaisa Group.

Kaisa has the most offshore debt of any Chinese developer after Evergrande and pleaded for help from creditors this week. It has coupon payments totalling over $59m due on Thursday and Friday, with 30-day grace periods for both.

It was not immediately known if Kaisa, which became China’s first property company to default on an overseas bond in 2015, has made payment for the tranche due on Thursday. It has already missed payments on some wealth management products at home.

While the US Federal Reserve this week warned that China’s troubled property sector could pose global risks, there are no clear indications on whether Beijing will step in with a national plan to tackle the issue. Chinese regulators have in recent weeks, however, sought to reassure investors and homebuyers, saying risks are controllable and excessive credit tightening by banks is being corrected.

Regulators and government think-tanks have held meetings with developers in the past few weeks, and the market is expecting some easing in credit and housing policies to prevent a hard landing for the sector.

Those hopes and Evergrande’s payment sparked a relief rally across Chinese property shares, with an index of real estate A-shares surging 9%, and Hong Kong’s Hang Seng mainland properties index closing up 5.6%. Shares of Evergrande closed 6.8% ahead at a two-week high.

Chinese developers’ bond prices, which have been hit hard in recent weeks, soared even higher. Duration Finance data showed the price on China Aoyuan Group’s 5.88% March 2027 bond jumping more than 30% on the day, though it continued to trade at deeply distressed levels of around 36c in the dollar.

Evergrande’s April 2022 notes jumped 4% from midnight to 28.886c on the dollar in the afternoon, yielding 620%, though still off the 30.289c earlier this week, according to Duration Finance data. The developer’s bond due in March 2024 traded at 24.839c, up from 23.692c on Wednesday, the data showed.

Bonds issued by Times China Holdings Xinyuan Real Estate, Yuzhou Group Holdings and Sunac China Holdings also rose more than 10%.

An index of dollar-denominated Asian high-yield bonds rose more than 1%, while Chinese high-yield corporate dollar spreads narrowed from record highs.

Developers including Evergrande and Kaisa have been looking to sell some of their business assets in China and elsewhere to raise cash amid rapidly growing repayment obligations. British electric motor maker Saietta said on Thursday it is acquiring electric power train company e-Traction from Evergrande’s automotive unit in a deal worth up to €2m.

Reuters