Business Essentials for Professionals


Evergrande Ordered By Chinese Authorities Not To Default On Dollar Bond

Evergrande Ordered By Chinese Authorities Not To Default On Dollar Bond
According to a Bloomberg Law report on Thursday, Chinese officials had ordered China Evergrande Group to prevent a near-term default on its dollar notes. The property developer is set to make a much-anticipated interest payment on its overseas debt on Thursday.
In a recent discussion with Evergrande officials, authorities advised the firm to engage proactively with bondholders in order to avert a default, according to Bloomberg, citing a person familiar with the case.
Separately, the Wall Street Journal reported on Thursday that Chinese authorities had asked local governments to prepare for the probable demise of Evergrande, China's second-largest property developer, citing sources.
A representative for Evergrande, China's second-largest real estate developer, declined to comment on the two claims.
On Thursday, Evergrande is scheduled to pay $83.5 million in interest on a $2 billion offshore bond, as well as a $47.5 million dollar-bond interest payment the following week.
Both would default if the company, which owes $305 billion, did not pay the interest within 30 days of the regular payment dates.
A business representative did not respond quickly to a request for comment on the Thursday payment deadline.
Evergrande, which typifies the borrow-to-build business model and was formerly China's top-selling developer, has been experiencing financial troubles in recent months.
Global markets are now on pins and needles as they await Evergrande's payment requirements, fearing that its troubles could pose systemic dangers to China's financial system.
Investors are concerned that the rot may spread to creditors, including Chinese and foreign banks, though experts have downplayed the possibility that a collapse could result in a "Lehman moment," or a systemic liquidity crunch.
Central bankers have stated that Evergrande is being closely monitored. The Bank of England stated on Thursday that it does not expect the situation to deteriorate significantly and is cautiously hopeful that Beijing will avoid severe problems.
Meanwhile, Switzerland's central bank stated that Evergrande should not be wished away as a small issue that is local for China.
Evergrande shares jumped about 18 per cent on Thursday after the company said that it has addressed the coupon payment for one of its domestic, onshore bonds, despite the fact that the stock had fallen more than 80% this year.
Evergrande Chairman Hui Ka Yan ordered his subordinates late Wednesday to assure the delivery of quality properties as well as the redemption of its wealth management products, which are generally held by millions of Chinese retail investors.
He did not, however, disclose the company's offshore debt.
According to the WSJ, local governments have been directed to form groups of accountants and legal experts to investigate the finances surrounding Evergrande's operations in their various districts.
They have also been directed to speak with local state-owned and private property developers in order to prepare to take over projects, as well as to put up law-enforcement teams to monitor public discontent and "mass events," a euphemism for demonstrations.
Analysts said Beijing's measures highlighted the pressure on Evergrande, whose liabilities amount to 2 per cent of China's GDP, to control the repercussions from its credit crisis and prioritize retail investors over professional creditors.
"Assuming this situation goes the way of a debt restructuring ... we think the retail investor nature of the wealth management products would be prioritized for social stability," said Ezien Hoo, credit analyst at OCBC Bank.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc