China Evergrande prepares funds for payment of interest, in order to avoid default -source

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HONG KONG / SHANGHAI – China Evergrande Group has provided funds to pay interest on a US dollar bond, a person with first-hand knowledge of the matter told Reuters on Friday, days before a deadline that allegedly saw the developer plunge into a formal defect.

The person said Evergrande deposited $ 83.5 million into a trust account at Citibank on Thursday – as reported earlier on Friday by the state-backed Securities Times – allowing it to pay all bondholders before the end of grace period on October 23.

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News of the remittance will likely bring relief to investors and regulators worried about the wider fallout from a default in global financial markets, reassuring Chinese officials who have said creditors’ interests will be protected.

Nevertheless, the developer will have to make payments on a series of other bonds.

“They seem to be avoiding a short-term default and it’s a bit of a relief that they’ve managed to find liquidity,” said a Hong Kong-based debt restructuring lawyer representing some bondholders.

“But all the same, Evergrande needs to restructure its debt. This payment could be a way for them to get some kind of buy-in with stakeholders before the big restructuring work. “

Evergrande did not respond to Reuters’ request for comment. Citibank declined to comment. The person aware of the case was not authorized to speak to the media and therefore declined to be identified.

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The disbursement comes a day after financial information provider REDD said on Thursday that Evergrande was given more time to pay off a past due bond it was guaranteeing, issued by Jumbo Fortune Enterprises. “It’s a positive surprise,” said James Wong, portfolio manager at GaoTeng Global Asset Management, who expected a default.

The news would boost the confidence of bondholders, he said, because “there are many coupon payments due ahead. If Evergrande pays this time, I don’t see why he won’t pay next time.

Evergrande missed coupon payments totaling nearly $ 280 million on its dollar bonds on October 23, 29 and 11, starting 30-day grace periods for each.

Subsequent non-payment would result in formal default and trigger cross-default provisions for its other dollar obligations.

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Evergrande’s next payment deadline is October 29 with the 30-day grace period expiring on its September 29 coupon.

TEMPORARY RELIEF

Evergrande dollar bond prices surged on Friday, with its April 2022 and 2023 banknotes surging more than 10%, Duration Finance data showed, although they were still trading at deeply distressed levels about a quarter of their face value.

Its shares rose to 7.8%, a day after trading resumed after a more than two-week halt pending the announcement of a sale of a stake in its property management unit, which was phased out this week.

Evergrande’s woes have spilled over into China’s $ 5,000 billion real estate sector, which makes up a quarter of the economy by some measures, with a series of announcements of defaults, downgrades and collapses in securities. corporate bonds.

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In the latest such move, Fitch Ratings on Thursday downgraded the long-term default rating of foreign currency issuers from Sinic Holdings (Group) Co Ltd to “narrow default” from “C” because the developer did failed to repay its $ 250 million notes due Oct. 18.

Still, the Evergrande news helped the Hang Seng Mainland Property Index rise more than 4% against a 0.25% gain in the larger Hang Seng Index.

In continental markets, the CSI300 real estate index jumped 6.5%, and an index tracking the entire real estate sector was forecasting its biggest gain in nearly two months.

FREE WHEELS

Evergrande’s woes had been snowballing for months. The decrease in resources against more than $ 300 billion in liabilities had wiped out 80% of its value.

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

Analysts said any prospect of demise would raise questions about what would happen to Evergrande’s more than 1,300 ongoing real estate projects in more than 280 cities, and any impact on the wider real estate industry.

The bank’s exposure to developers is also important. A leaked 2020 document, labeled as fake by Evergrande but taken seriously by analysts, showed the company’s liabilities stretched to more than 128 banks and more than 121 non-bank institutions.

“Given that we have little clarity on how bank financing is going for stalled real estate projects, but we know that project pre-sales are dropping sharply, the onshore business is unlikely to provide liquidity at Evergrande in the short term, ”the analyst said. Travis Lundy at Quiddity Advisors in Hong Kong. (Reporting by Clare Jim and Scott Murdoch in Hong Kong, Samuel Shen and Andrew Galbraith in Shanghai, Anshuman Daga in Singapore and Marc Jones in London; written by Sam Holmes; edited by Christopher Cushing)