According to sources close to the matter, China Evergrande Group (HKG:3333) has made an interest payment for an offshore bond before a grace period expired on Friday. The transaction means the doomed developer has barely avoided a second disastrous default in a week.
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Evergrande Payment
According to Reuters, had Evergrande not paid on the Friday deadline, cross-defaults on all of the company's $19 billion worth of bonds in international capital markets would have ensued, in what would have been the world's second-largest emerging market corporate debt default.
The property developer averted default last week by seizing $83.5 million for the last-minute payment of interest on a bond, which was worth $47.5 million and expires in March 2024, as reported by CNN.
The origins of the resources used in the payment have not been established by Reuters, but Bloomberg News revealed earlier this week that Evergrande's founder Hui Ka Yan had been urged by Chinese regulators to pay out of his personal wealth.
Cliff Zhao, chief strategist at China Construction Bank International in Hong Kong, said: "Evergrande has tried its best to solve liquidity problems, but it's a little bit difficult to gather enough capital to pay all the debt.”
"I think there (will) be some negotiations between Evergrande and its lenders, so some sort of haircut is still possible. The market still needs some time to digest and to price this in."
Selective Defaults
China’s second-largest property liabilities stand around $300 billion, with a further $148 billion in unpaid interest due last month. The company’s collapse is being closely monitored by global markets at large, as it could upset China’s economy triggering a chain reaction.
Moody's analysts wrote in a Thursday report: “Funding access for Chinese property developers has tightened ... significantly and rapidly in recent weeks, as banks and bond investors have become skittish about the property sector.”
Reuters reports that Evergrande’s bonds prices hopped up on Friday, “with its 11.5% January 2023 bond surging more than 9%, and its 12% January 2024 bond up nearly 8% on the day, data from Duration Finance showed.”
DBS strategist Wei Liang Chang said in a client note: “Selective defaults in the offshore market are emphatically not acceptable for the authorities, and the NDRC clarification this week should reassure offshore investors that they will be treated fairly alongside onshore investors.”
