16/05/2022

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china’s-evergrande-teeters-on-brink-of-default-as-deadline-looms

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

Developer’s recent comments raise expectations of direct state involvement and managed debt restructure.

Published On 6 Dec 2021

After lurching from deadline to deadline, China Evergrande Group is again on the brink of default, with pessimistic comments from the property developer raising expectations of direct state involvement and a managed debt restructuring.

Having made three 11th-hour coupon payments in the past two months, Evergrande will again face the end of a 30-day grace period on Monday, with dues this time at $82.5m.

But a statement late on Friday saying creditors had demanded $260m and that it could not guarantee enough funds for coupon repayment prompted authorities to summon its chairman – and wiped an eighth off its stock’s market value on Monday.

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

Friday’s statement was followed by one from authorities in the company’s home province of Guangdong, saying they would send a working group to Evergrande at the developer’s request to oversee risk management, strengthen internal control and maintain operations.

The central bank, banking and insurance regulator and securities regulator also released statements, saying the risk to the broader property sector could be contained.

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

Analysts said authorities’ concerted effort signalled Evergrande has likely already entered a managed debt-asset restructuring process to reduce systemic risk.

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

Regulators would also likely facilitate debt restructuring discussion with offshore creditors after business operations start to stabilise, the US investment bank said.

Evergrande’s November 2022 bond – one of two bonds that could go into default on non-payment on Monday – was trading on Monday at the distressed price of 20.787 US cents on the dollar, compared with 20.083 cents at the end of Friday.

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