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China’s Evergrande strikes deal to avoid default on key bond

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Embattled Chinese housing giant Evergrande said Wednesday it had agreed a deal with domestic bondholders that should allow the conglomerate to avoid default on one of its interest payments.

Financial markets have tumbled over fears that the Chinese group could collapse, with the potential to derail the world’s second-biggest economy.

In a statement to the Shenzhen stock exchange, Evergrande’s property unit Hengda said it had negotiated a plan to pay interest due on its 2025 bond, which Bloomberg News calculated was worth 232 million yuan ($35.9 million).

There was no mention of its repayments on interest for an offshore bond.

In the statement, Hengda said investors “who bought and held the bonds” before September 22, 2021 “are entitled to interest paid this time”.

Analysts said the repayment will go some way to soothing anxious markets in the short term.

But “for confidence to return more meaningfully, it will need the market to see sight of the broad restructuring plans for Evergrande”, Gary Dugan, chief executive officer at the Global CIO Office, told Bloomberg.

The Evergrande crisis has even triggered rare protests outside the company’s offices in China by investors and suppliers demanding their money — some of whom say they are owed as much as $1 million.

‘Tremendous pressure’

While predominantly a developer, Evergrande — which employs 200,000 people, has a presence in more than 280 cities and claims to indirectly generate 3.8 million Chinese jobs — has been on a buying spree for more than a decade.

But the group has admitted facing “tremendous pressure” as it tackles a debt pile of more than $300 billion, and had warned that it may not be able to meet its liabilities.

>> Evergrande’s collapse would have ‘profound consequences’ for China’s economy

Earlier this week, Xu Jiayin, the company founder, told staff he believes the group will “step out of the darkest moment soon”.

The company has hired experts including financial services firm Houlihan Lokey — which advised on the restructuring of Lehman Brothers — as it tries to avoid a collapse.

Bloomberg reported last week that state regulators have dispatched a team of financial advisers to assess the company.

Abdul Abiad, director of the macroeconomic research division at the Asian Development Bank, told reporters at a virtual briefing that China’s “banking system’s capital buffers are strong enough to absorb a shock even of Evergrande’s size, should it materialise”.

“It warrants careful monitoring because housing is an important component of the Chinese economy… housing makes up a substantial portion of household wealth so obviously if the property sector is impacted that could have knock-on efforts for the broader Chinese economy,” he added.

In a report issued earlier this week, the S&P ratings agency said it believed authorities in Beijing would intervene if they considered any large-scale fallout was likely to materialise.


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The Groucho

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