Evergrande Avoids Defaults But Is Not Out Of The Woods Yet, Says Analyst

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Chinese company Evergrande Property Services Group Ltd (HKG:6666) may have avoided a default for now, providing some relief for Chinese equities and European markets this morning, but the company isn’t out of the woods yet, says EXANTE’s senior analyst, Victor Argonov.

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Evergrande Is Not Out Of The Woods Yet

"In a surprise, but welcoming, development, China Evergrande made a last minute overdue interest payment to its offshore bondholders overnight. That was according to the state-owned Securities Times. The company had already missed the payment and the 30-day grace period was going to end today. But this unexpected move allows the property developer to postpone and maybe even avoid what looked like a certain default,” he says.

“However, Evergrande is far from being out of the woods as another missed payment is due by 29 October. What’s more, Evergrande is not the only Chinese developer in trouble. A growing list of companies that have either missed or set to miss out on their offshore bond payment include Fantasia Holdings, China Properties and Modern Land among others. So, there is risk of contagion for any major Western companies with significant exposure to these troubled developers – something that might derail the global rally,” he adds.

Argonov says: “Also supporting sentiment is the fact that major central banks have come out in support of limited tightening, reducing fears that they will be tightening their policies aggressively in the months ahead due to high levels of inflation. This is why gold and silver have been able to shine a little more brightly of late, even if 10-year bond yields have remained elevated near their recent highs.”