Evergrande pays interest to avoid catastrophic default

According to sources familiar with the matter, China Evergrande Group (HKG: 3333) made an interest payment on an offshore bond before a grace period expired on Friday. The deal means the doomed developer barely avoided a disastrous second default in a week.

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Evergrande payment

According to Reuters, had Evergrande not paid by Friday’s deadline, cross defaults on all of the company’s $ 19 billion bonds in international capital markets would have occurred, resulting in was reportedly the second largest emerging market corporate debt default in the world.

The real estate developer avoided default last week by seizing $ 83.5 million for the last-minute interest payment on a bond, worth $ 47.5 million and expiring in March 2024, as the ‘CNN reported.

The origins of the resources used in the payment have not been established by Reuters, but Bloomberg News revealed earlier this week that Evergrande founder Hui Ka Yan had been urged by Chinese regulators to pay out of his personal fortune. .

Cliff Zhao, chief strategist of China Construction Bank International in Hong Kong, said, “Evergrande has done its best to resolve the liquidity issues, but it is a little difficult to raise enough capital to pay off all the debt. “

“I think there will (there will be) negotiations between Evergrande and its lenders, so some kind of haircut is still possible. The market still needs time to digest and assess this.”

Selective defaults

China’s second-largest real estate liability stands at around $ 300 billion, with an additional $ 148 billion in unpaid interest owed last month. The company’s collapse is being watched closely by global markets as a whole as it could disrupt the Chinese economy and trigger a chain reaction.

Moody’s analysts wrote in a Thursday report: “Access to finance for Chinese real estate developers has tightened … significantly and rapidly in recent weeks, as banks and bond investors have grown suspicious. with regard to the real estate sector.

Reuters reports that Evergrande bond prices surged on Friday, “with its 11.5% January 2023 bond up more than 9% and its 12% January 2024 bond nearly 8% on the day. , according to data from Duration Finance “.

DBS strategist Wei Liang Chang said in a client note: “Selective defaults in the offshore market are absolutely unacceptable to the authorities, and the NDRC’s clarification this week should reassure offshore investors that they will be. treated fairly alongside onshore investors.

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Elaine R. Knight