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Payment Deadline Missed By China Evergrande And Its EV Unit Says It Is Cash Strapped

Payment Deadline Missed By China Evergrande And Its EV Unit Says It Is Cash Strapped
China Evergrande's electric vehicle company warned on Friday that it risked an unclear future except if it received an immediate financial infusion, marking the strongest evidence yet that the property developer's liquidity problem is spreading in other parts of the enterprise.
The total debt of Evergrande is huge – at $305 billion, and the company is completely cash strapped. There are growing concerns among investors that a collapse would pose systemic dangers to the financial system of China and there will be repercussions throughout the other markets of the world.
The business missed a payment due on a dollar bond earlier this week, leaving investors worldwide wondering if they would have to swallow hefty losses after the expiry of a 30-day grace period.
Meanwhile, China Evergrande New Energy Vehicle Group stated that in the absence of a strategic investment or asset sale, its capacity to pay its employees and its suppliers as well as to commercially produce vehicles will suffer.
Evergrande has been virtually silent about the $83.5 million interest payment earlier this week and this stance of the company is in stark contrast to its typical treatment of its domestic investors.
Evergrande's primary property firm in China announced on Wednesday that it had discreetly negotiated with onshore bondholders for resolving a separate coupon payment on a yuan-denominated note.
"This is part of the tactics of any sovereign-driven restructuring process - keeping people in the dark or guessing," said Karl Clowry, a partner at Addleshaw Goddard in London.
"The view from Beijing is offshore bondholders are largely Western institutions and so can justifiably be given different treatment. I think people think it's still a falling knife."
On Friday, China's central bank pumped cash into the banking system once more, sending a signal of support to markets. However, officials have been mute about Evergrande's plight, and China's state media has provided no hints about a rescue plan.
"These are periods of eerie silence as no one wants to take massive risks at this stage," said Howe Chung Wan, head of Asia fixed income at Principal Global Investors in Singapore.
"There's no precedent to this at the size of Evergrande ... we have to see in the next ten days or so, before China goes into holiday, how this is going to play out."
Evergrande is likely to be one of China's largest-ever restructurings, and prospects for a quick settlement are low.
China's HNA group's obligations pale in contrast, but its insolvency is still underway, with creditors demanding $187 billion, according to a person familiar with the discussions. On Friday, authorities apprehended both the chairman and CEO of HNA.
So yet, there have been few signs of stress in the money and credit markets, as well as other areas, indicating that the crisis has expanded beyond China.
Evergrande engaged financial advisers and published a default notice last week, and world markets fell on Monday amid fears of spillover, but have since steadied.
The challenge for China's policymakers is how to apply financial discipline without inciting social discontent, given that the collapse of Evergrande may smash a real estate market that represents 40% of Chinese household wealth.
Demonstrations by unhappy vendors, house purchasers, and investors this week highlighted a level of dissatisfaction that may escalate if a default causes crises at other projects.
The fractured property market in China is exhibiting symptoms of pressure, which may spark a wave of reorganization among real estate companies.

Christopher J. Mitchell

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