China Evergrande to avoid default after supplying funds for interest payment: reports

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China Evergrande Group will supply money to pay interest on US dollar bonds, a person with direct knowledge of the matter told Reuters on Friday, ahead of a deadline that would have seen the developer fall into a formal default. .

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The person said Evergrande remitted $83.5 million Thursday to a trustee account at Citibank — as reported Friday by the state-backed Securities Times — to be paid to all bondholders before the payment grace period expires on October 23. allows.

The news of the remittance will bring relief to investors and regulators, who are concerned about the wider repercussions of the default in Granthshala financial markets, adding to assurances from Chinese officials who have said the interests of creditors will be protected.

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Still, the developer would need to make payments on several other bonds.

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“They avoid short-term default and it is a bit of a relief that they have managed to find liquidity,” said a Hong Kong-based debt restructuring lawyer representing some bondholders.

“But still, Evergrande needs to restructure its debt. This payment could be a way for them to do some sort of buy-in with stakeholders before the heavy work required on restructuring.”

Evergrande did not respond to Reuters’ request for comment. Citibank declined to comment. The person with knowledge of the matter was not authorized to speak to the media and therefore declined to be identified.

The remittances come a day after financial information provider REDD said on Thursday that Evergrande has secured more time to pay off defaulted bonds issued by Jumbo Fortune Enterprises. “This is a positive surprise,” said James Wong, portfolio manager at Gaoteng Granthshala Asset Management, who had anticipated the default.

The news will boost bondholders’ confidence, he said, adding, “There are several coupon payments due ahead. If Evergrande pays this time, I don’t see why it won’t pay next time.”

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Evergrande missed coupon payments totaling $280 million on its dollar bonds on September 23, September 29 and October 11, each beginning a 30-day grace period.

Subsequent nonpayment would result in formal default and trigger cross-default provisions for its other dollar bonds.

Evergrande’s next payment deadline is October 29, and the 30-day grace period on its September 29 coupon will expire.

temporary relief

Evergrande’s dollar bond prices rose on Friday, with its April 2022 and 2023 notes up more than 10%, data from Duration Finance showed, though they were still deeply distressed at about a quarter of their face value. level traded.

Its shares rose 7.8% a day after trading resumed, after more than two weeks of halving pending the announcement of a stake sale in its asset management unit, which was liquidated this week.

Evergrande’s crisis has turned the $5 trillion Chinese asset sector, which by some metrics into a quarter of the economy, with a string of default declarations, rating downgrades and bearish corporate bonds.

In the latest such move, Fitch Ratings on Thursday downgraded Cynic Holdings (Group) Co Ltd’s long-term forex issuer default rating from “C” to “restricted default” as the developer repays its $250 million notes on October 18. failed in

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Still, the Evergrande news helped lift the Hang Seng mainland asset index by more than 4%, compared to a 0.25% increase in the broader Hang Seng index.

In mainland markets, the CSI300 real estate index jumped 6.5%, and an index tracking the broader property sector was eyeing its biggest gain in nearly two months.

hi snowballing

Evergrande’s havoc had been snowing for months. Depleting resources set against more than $300 billion of liabilities had wiped out 80% of its value.

Established in 1996 in Guangzhou, the developer embodies a free era of borrowing and construction. But that business model has been decimated by hundreds of new regulations designed to curb the credit frenzy of developers and promote affordable housing.

Any chance of demise would raise questions about what would happen to Evergrande’s more than 1,300 real estate projects in more than 280 cities, and any impact on the wider property sector, analysts said.

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Bank exposure to developers is also extensive. A leaked 2020 document, which was branded a fake by Evergrande but taken seriously by analysts, showed the company’s liabilities extended to over 128 banks and over 121 non-banking institutions.

“Given that we have little to do with how bank financing for stalled real estate projects is going, but we do know that project pre-sales are very low, supplying near-term cash to onshore business Evergrande. unlikely to do,” said analyst Travis Lundy at Quidity Advisors in Hong Kong.

(Reporting by Claire Jim and Scott Murdoch in Hong Kong, Samuel Shen and Andrew Galbraith in Shanghai, Anshuman Daga in Singapore and Mark Jones in London; Writing by Sam Holmes; Editing by Christopher Cushing)

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