Evergrande escapes immediate risk of default


Evergrande has paid interest on bonds issued in US dollars before the 30-day grace period ending on October 23, the China Securities Times (Securities Times) reported on October 22.

It is estimated that Evergrande is carrying a “mountain of debt” of more than 300 billion USD. Photo: AFP

Worry about Evergrande “spreading disease”

Thus, after nearly a month of “silence” before the interest payment obligation of USD 83.5 million for US dollar bonds due on September 23, Evergrande’s “debt bomb” has now escaped. risk of default. After this information, Evergrande shares listed in Hong Kong ended the trading day on October 22 with an increase of 4.26%.

According to Securities Times, Evergrande had planned to pay bond interest before the grace period and transferred the bond interest payment of $83.5 million through Citibank.

Evergrande is identified as the most indebted real estate development in the world when carrying a “mountain of debt” of more than 300 billion USD. For months, the group has struggled to raise capital to pay off its debts.

Evergrande missed bond interest payments four times in September and October. According to Reuters, a total of this business has ignored interest payments on bonds worth at least $279 million since September, including a return of $83.5 million on September 23. In the immediate future, Evergrande will have two US dollar bond interest payments in November and December.

Jim Veneau, Head of Asia Fixed Income at AXA Investment Management Fund, said that Evergrande’s plan to pay $83.5 million in bond interest was an “unexpected” development.

“It was certainly a surprise, but a positive surprise,” commented Jim Veneau. “The key to Evergrande’s payables is that the business at least shows goodwill to pay.”

But, “I wouldn’t call it a game changer, it’s more like a hopeful one,” added Jim Veneau.

The doubt that Evergrande would be insolvent has shaken many financial markets around the world. Along with that is the fear that the collapse of this group will cause a “domino effect” to other real estate businesses or the Chinese economy.

Analysts still think that Evergrande will prioritize repayment of domestic investors over foreign investors. However, last week the Central Bank of China urged real estate companies that have issued bonds abroad (international bonds) to actively fulfill their debt repayment obligations.

For Evergrande, qThe process of collecting money to repay the debt did not go smoothly when this week they failed to negotiate to sell some properties at Evergrande Property Services.

In early October, Evergrande negotiated to sell a 50.1% stake in Evergrande Property Services to a smaller rival, Hopson Development Holdings. But Hopson said on October 20 that the negotiated deal to buy Evergrande’s assets worth 20.04 billion Hong Kong dollars (equivalent to 2.58 billion USD) had collapsed.

In fact, Evergrande is not the only subject of China’s real estate industry faltering because of debt. Mr. Jim Veneau said that recently, China’s real estate industry witnessed two more members, Fantasia and Modernland, “broken up” because of debt.

“Three red lines” for Chinese real estate

Evergrande’s problems have complicated since Chinese authorities introduced a “three red lines” policy for real estate businesses last year. This policy places a limit on debt in relation to the cash flow, assets, and capital level of the business. This has held back Chinese property developers after years of debt-fueled growth.

Only in the past few years, Chinese real estate enterprises have increasingly had to shoulder a lot of debt, especially foreign market debt. In the period 2016 – 2020, the total amount of US dollar bonds that Chinese real estate enterprises in overseas release reached 900 billion yuan ($139.75 billion), nearly double the 500 billion yuan increase in domestic yuan-denominated bonds, according to statistics from Nomura Financial Group (Japan). ).

Data from financial analysis firm Dealogic (UK) shows that Evergrande currently has the highest level of overseas debt issuance in the real estate industry, accounting for 6 out of 10 US dollar bond transactions abroad. of Chinese real estate companies in the period 2016 – 2021.

And investment bank Natixis (France) said that, mid-2021 Evergrande has crossed all three “red lines” set by the Chinese government and accounts for 19% of all high-yield US dollar bonds issued by Chinese real estate companies, with values ​​up to to 19.24 billion USD. The US dollar bonds issued by Evergrande are mainly held by foreign investors.