China’s Evergrande teeters on brink of default as deadline looms

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The developer’s recent comments raise hopes of direct state involvement and managed debt restructuring.

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After reaching the deadline by the deadline, China Evergrande Group is again on the verge of default, with pessimistic comments from the property developer raising hopes of direct state involvement and a managed debt restructuring.

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After making three 11th-hour coupon payments over the past two months, Evergrande will face a 30-day grace period again on Monday, this time with $82.5m in balance.

But a statement late Friday said creditors had sought $260m and could not guarantee enough money for coupon repayments, prompting executives to call its chairman – and its One-eighth of the stock’s market value wiped out.

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Evergrande was once China’s best-selling developer, but is now grappling with more than $300bn in liabilities, meaning a collapse could rip through the property sector and beyond.

Following Friday’s statement, officials in the company’s home province of Guangdong said they would send Evergrande a working group on the developer’s request to oversee risk management, strengthen internal controls and maintain operations.

The central bank, banking and insurance regulator and securities regulator also issued a statement saying that the risk to the broader asset sector could be contained.

The People’s Bank of China said short-term exposure from a single real estate firm will not undermine market financing in the medium or long term. Housing sales, land purchases and financing “have already become normal in China”, it said.

Analysts said a concerted effort by executives indicated that Evergrande has already entered a managed debt-asset restructuring process to mitigate systemic risk.

Morgan Stanley said in a report that such a process would include coordination between authorities to maintain the normal operation of property projects and negotiations with onshore creditors to ensure financing for project development and completion.

US Investment Bank said regulators will also facilitate debt restructuring discussions with offshore creditors once business operations stabilize.

Evergrande’s November 2022 bond – one of two bonds that could go into default if not paid on Monday – was trading at a distressed value of 20.787 US cents on the dollar on Monday, compared to 20.083 cents at the end of Friday .

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