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China's Evergrande Avoids A Debt Default While Indicating Business Focus Shift

China's Evergrande Avoids A Debt Default While Indicating Business Focus Shift
According to reports quoting sources with information, China Evergrande Group has apparently managed to have avoided a default with a last-minute bond coupon payment, giving it another week to deal with a debt crisis hanging over the second-largest economy of the world.
In the future, it will accord more importance to its electric car company over real estate, the property developer also stated.
Evergande is slated to comply with a payment of interest on a US dollar during the weekend and it was reported that the beleaguered company paid $83.5 million to a Citibank trustee account on Thursday. This provided some solace to investors and regulators who are concerned about the impact on global markets, and it contributed to Chinese officials' promises that the interests of creditors would be secured.
Despite this, Evergrande which has been identified as the most indebted property company of the world with more than $300 billion in liabilities - must make payments on a slew of other bonds, with the next key deadline to prevent default coming on Oct. 29.
However, the ability of the company to weather the storm is widely questioned because of limited information about its capacity for paying up debts and a 30 per cent fall in its property sales in the previous year.
There was no comment available on the issue from Evergrande and Citibank.
The company targets to put at the core of its business strategy its new electric car endeavor within the next 10 years and shift focus from real estate business, the company’s chairman Hui Ka Yan said on Friday.
According to the state-backed Securities Times, property sales would decrease to around 200 billion yuan ($31.31 billion) each year by that time, down from more than 700 billion yuan last year.
The new electric car division of Evergrande that was established in 2019 has not yet been able to unveil a production model or prototype or sell a single vehicle. in a warning last month, the business had said that it was still on the lookout for new investors and planning the sale of its assets. It had said that if none of the two happens, it would find it very difficult to pay staff and meet other obligations.
Evergrande's problems have been building for months, and 80 per cent of the company’s value has been eroded because of eroding of its resources against the massive debts and liabilities that it carries.
This once second-largest real estate developer of China was established in 1996 in Guangzhou and was an idol for a freewheeling period of borrowing money for the building and construction of real estate projects.  
However, hundreds of new restrictions and regulations aimed to control developers' debt frenzy and encourage affordable housing have sunk that business model of the company.
It is still not clear how the severely cash-strapped company could get hold of funds for paying up against the bonds or whether some had previously been paid. For its next debt obligation Evergrande will need to raise $47.5 million by Oct. 29 and will be responsible for almost $338 million in other offshore coupon payments which are to be made in November and December.
"While obviously a positive, the coupon payment does not address the overall concerns about Evergrande's sustained liquidity through the first maturity in Q2 2022 and beyond," said John Han, a partner at law firm Kobre & Kim in Hong Kong.
"This only shows that the company is not yet ready for the house to come down completely through a massive cascade of cross defaults. Time is needed for what is planned next."

Christopher J. Mitchell

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