Evergrande’s debt deadline passed as Kaisa deepens China’s real estate crisis

  • Non-payment could create China’s biggest default
  • Smaller Kaisa is also set to miss the payment deadline
  • Evergrande at the heart of the Chinese real estate crisis
  • Government says Evergrande’s problems can be contained

HONG KONG / SHANGHAI, Dec. 7 (Reuters) – Some offshore bondholders of the China Evergrande Group (3333.HK) did not receive coupons after a 30-day grace period ended, five people said aware of the matter, pushing the cash-strapped real estate developer closer to formal default.

Adding to a liquidity squeeze in the once-bubbling Chinese real estate market, Kaisa Group Holdings (1638.HK) is also unlikely to meet its $ 400 million offshore debt deadline on Tuesday, a source directly familiar with the matter said. folder.

Evergrande’s failure to make $ 82.5 million in interest payments due last month would trigger a cross default on its roughly $ 19 billion in international bonds and put the developer at risk of becoming the biggest default payment from China – a possibility looming for the world’s second-largest economy for months to come. .

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Kaisa’s non-payment would push the 6.5% bond of Kaisa, China’s largest offshore debt holder among developers after Evergrande, in technical default, triggering cross defaults on its offshore bonds totaling nearly $ 12 billion. dollars.

Evergrande did not respond to Reuters’ request for comment. Kaisa, who in 2015 became the first Chinese developer to default on an offshore bond, declined to comment.

All sources declined to be named because they were not authorized to speak to the media.

Evergrande was once China’s leading real estate developer, with more than 1,300 real estate projects. With $ 300 billion in liabilities, it is now at the heart of a real estate crisis in China this year that has crushed nearly a dozen small businesses.

The government has repeatedly stated that Evergrande’s problems can be contained and that measures to increase liquidity in the banking sector as well as the company’s plans to continue restructuring its debt abroad have helped reassure global investors.

Strategist Kenny Ng at Everbright Sun Hung Kai Securities said investors expected Evergrande’s non-payment and “are just waiting to see when it happens.”

“At the same time, investors are watching the development of Evergrande, including whether it is heading towards a debt restructuring or its plan to pay off creditors,” Ng said.

Evergrande has not sent any communication to bondholders about the missed payment, one of the five sources said.

The developer said on Monday it had set up a risk management committee including heads of state entities to help “mitigate and eliminate future risks.” Read more

This came after he said creditors demanded $ 260 million and he could not guarantee the funds to repay the debt, prompting authorities to summon his president and reassure the markets in the fact that a larger risk could be contained. Read more

Rating agency S&P said on Tuesday that the $ 260 million repayment demand showed Evergrande’s liquidity remained “extremely low,” with default appearing inevitable, especially given maturities totaling $ 3.5 billion. in March and April 2022.

The company logo is seen at the headquarters of the China Evergrande Group in Shenzhen, Guangdong Province, China on September 26, 2021. REUTERS / Aly Song / File Photo

Scuttled BUSINESS MODEL

So far, any fallout from Evergrande has been largely contained in China, and with increasingly vocal policymakers and markets more familiar with the issue, the consequences of its problems are less likely to be felt widely, said market watchers.

State involvement and hopes of managed debt restructuring helped push Evergrande stock soar to 8.3% per day after plunging 20% ​​to a record closing low . Still, it ended Tuesday up just 1.1% as its bonds continued to trade at troubled levels.

The notes maturing on November 6, 2022 – one of two tranches with a coupon payment deadline that expired at midnight Monday in New York City – were trading at 18.282 cents to the dollar, according to data from Duration Finance, little changed compared to the day before.

Founded in 1996, Evergrande embodied an era of freewheeling borrowing and construction. But that business model has been scuttled by hundreds of new rules designed to curb developer debt frenzy and promote affordable housing.

Evergrande became one of many developers who subsequently went deprived of cash, resulting in offshore debt default and credit rating downgrades, as well as a drop in the value of stocks and bonds. developers.

A series of developers have attempted to raise funds by selling stocks and assets. Only some have found a taker.

Shimao Group (0813.HK) and Logan Group (3380.HK) both announced a follow-up stock placement on Tuesday to raise around $ 150 million each, while Guangzhou R&F Properties (2777.HK) said it had agreed to sell 30% stake in a logistics park in Guangzhou.

For Kaisa, the risk of default emerged after a failed note swap deal with bondholders last week.

To avoid a default, bondholders holding more than 50% of the notes due December 7 and Kaisa notes totaling $ 5 billion sent the company draft forbearance conditions. Monday evening, said a separate source with direct knowledge of the matter.

Even in the event of a technical failure, Kaisa and the offshore bondholders could discuss forbearance conditions, two sources familiar with the matter said.

Kaisa, whose shares rose 1.1% on Tuesday, said he was open to a discussion of forbearance, without giving further details.

Sources previously said bondholders offered Kaisa $ 2 billion in financing last month, but the offer had not progressed. Read more

($ 1 = 7.7998 Hong Kong dollars)

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Reporting by Clare Jim and Scott Murdoch in Hong Kong and Andrew Galbraith in Shanghai; Editing by Sumeet Chatterjee, Christopher Cushing and Edmund Blair

Our Standards: Thomson Reuters Trust Principles.


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Elaine R. Knight