China’s Evergrande may have averted a formal default by wiring funds for a US dollar bond interest payment, initially due September 23, just a couple of days before a grace period was set to expire.
Key points:
- Reports reveal Evergrande has remitted a key overdue interest payment before its 30-day grace period expires
- Final deadlines for more overdue bond interest payments are approaching soon
- A senior Chinese official says Evergrande is not threatening China’s banking system
A Reuters source corroborated a story in the Chinese state-backed Securities Times on Friday that “the company had remitted $US83 million ($110 million) in coupon payments to a trustee account at Citibank on Thursday”, allowing it to pay the overdue interest owed to bondholders before the grace period expired on October 23.
“They seem to be avoiding short-term default and it’s a bit of a relief that they have managed to find liquidity,” said a Hong Kong-based restructuring lawyer representing some bondholders.
“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 remains at risk of China’s largest ever corporate default, with debts totalling more than $400 billion.
The developer will still need to make payments on a string of other bonds, including a $US47.5 million ($60 million) interest payment that it initially missed on September 29.
The 30-day grace period is also expiring on those debts.
Missing the grace period would result in a formal default by the company and secured creditors could place the Evergrande into liquidation if that happens.
The Evergrande debt crisis has triggered economic woes across the real estate and construction industries in China, with the country’s GDP growth slowing down to 4.9 per cent in the third quarter.
The ABC has approached Evergrande for comment and Citi declined to comment on this matter.
So far, there has been no formal announcement on the Hong Kong Stock Exchange from Evergrande confirming the bond payment.
‘Won’t have a major impact’: Chinese official
News of the remittance has sent a positive signal to the share markets and will likely bring relief to investors and regulators.
Evergrande’s shares jumped almost 8 per cent, a day after they dropped sharply after a potential deal between Evergrande and its rival developer Hopson fell through.
Both companies informed the Hong Kong Stock Exchange that they were unable to agree to terms and resumed trade on the share market on Thursday after weeks of suspension.
Liu Zhongrui, a senior official from China Banking and Insurance Regulatory Commission said Evergrande’s debt issue is an “individual” problem.
“The foundation of the credibility of Chinese-funded enterprises lies in the stability of China’s macro-economy,” Mr Liu said in a press conference on Thursday.
He added that the Evergrande crisis was not a direct threat to China’s banking system as its bank debt only accounts for less than one-third of the total liabilities and that debt is widely spread among banks.
That echoes what governor Yi Gang from People’s Bank of China (PBoC), China’s central bank, said on Sunday.
He argued that Beijing can “contain” risks to China’s financial system and economy stemmed from Evergrande’s debt crisis.
The Chinese government is concerned about the level of debt linked to the real estate market and last year introduced policies to curb it.
Moody’s has given Evergrande’s debt a junk rating of Ca, the second-lowest category, reflecting “its high liquidity and default risks” and “the weak recovery prospects for Evergrande’s creditors if there is a default.”
ABC/Reuters
