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September 23, 2021

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Evergrande bond payment deal calms contagion fears

CHINA Evergrande agreed to settle interest payments on a domestic bond yesterday, while the Chinese central bank injected cash into the banking system, soothing fears of imminent contagion from the debt-laden property developer.

Evergrande, Asia’s biggest junk bond issuer, is scrambling to avoid defaulting on a number of bonds with payments due this week and its main unit, Hengda Real Estate Group, said yesterday it had “resolved” one coupon payment due today on its Shenzhen-traded September 2025 bond, via “private negotiations.”

The 4-billion-yuan (US$620 million) bond has a 5.8 percent interest rate, which would make the normal amount due 232 million yuan for one year.

It did not specify how much interest would be paid or when, nor did Hengda mention Evergrande’s other pressing debts, leaving it unclear what this means for US$83.5 billion in dollar bond interest payments due today.

Even if it misses the payment, the company would still have a 30-day grace period before it is deemed in default.

Evergrande did not immediately respond to questions about its deal or its intentions.

But engagement with bondholders, a common way to avoid default, on top of chairman Xu Jiayin’s vow this week that Evergrande would “walk out of its darkest moment,” cheered investors and soothed markets.

“These events seem to suggest that the company is taking control of the situation and is trying its best to work out a solution with creditors,” Singapore-based Dexter Tan, a senior fixed income analyst at, said.

Evergrande, which epitomized the borrow-to-build business model and was once China’s top-selling developer, also has a US$47.5-million-dollar bond interest payment due next week.

Evergrande’s fate has kept global stock and bond markets on tenterhooks as late debt payments could trigger so-called cross-defaults. Many financial institutions have exposure to Evergrande through direct loans and indirect holdings, while any defaults will also trigger selloffs in the high-yield credit market.

In an effort to reassure investors, the People’s Bank of China’s injected 90 billion yuan to the banking system, signaling support for markets as they braced for what is expected to be one of China’s largest-ever debt restructurings.

News of the deal provided support to equities yesterday, with Shanghai leading most Asian markets up, even as traders returned from a long weekend break to play catch up with Monday’s global rout.

The Shanghai market closed 0.40 percent higher yesterday although Shenzhen crept down 0.25 percent.

Evergrande’s Hong Kong shares did not trade due to a public holiday but rose 40 percent in Frankfurt to 0.38 euros (US$0.45). Its dollar bonds maturing next year and in 2024 remained below 30 US cents on the dollar.

Analysts have been downplaying the risk that a collapse threatens a “Lehman moment,” or liquidity crunch, which freezes the financial system and spreads globally.

Only some US$20 billion of US$305 billion outstanding debts is owed offshore, according to Refinitiv data. But the risk of failure remains high, particularly if offshore bondholders are less willing than those in China to cut deals.

Analysts said yesterday’s 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 News.

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


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