China Evergrande Group has won investor support to delay payment of a $ 708 million onshore Chinese yuan-denominated bond, averting what could have been its first public default in the country’s domestic bond market.
The move highlights how large Chinese borrowers such as Evergrande can operate effectively in two distinct financial worlds, with onshore creditors sometimes taking a different approach from their international counterparts and Chinese markets somewhat protected from offshore defaults.
Evergrande is the most leveraged developer in the world, with more than $ 300 billion in liabilities spanning onshore and offshore bonds, loans from banks and shadow bank lenders, payments from homebuyers for unfinished homes, and sums. due to suppliers.
The company is found to be in default by international rating companies after failing to make certain payments on dollar bonds.
Ashore, however, Evergrande has somewhat higher credit scores on paper, even though he is in debt restructuring mode and has enlisted the help of the government. It did not default on any of its 56 billion yuan, or about $ 8.8 billion, of publicly traded bonds and asset-backed securities, according to data from Wind.
Evergrande’s main onshore subsidiary, Hengda Real Estate Group Co., said on Thursday evening, Shanghai time, that holders of a 4.5 billion yuan note had voted to defer payment of the coupons for six months until. ‘to July 8, after a series of meetings. Creditors also rejected a repayment option that could have forced Hengda to buy back part of the bonds.
Many onshore bonds issued by developers are held by financial institutions, such as commercial banks and city-level trust companies, which may also have made loans to a borrower. These creditors may be willing to compromise on bond repayments if doing so avoids a default that would cause a rush of immediate repayment requests.
Bankruptcy and restructuring cases can take years to work their way through the Chinese legal system and do not always lead to good results for creditors, which can also make it more attractive to enter into a deal with a borrower. . Bonds and loans in China generally do not include cross-default clauses triggered by offshore events.
“For many developers, defaulting on their onshore obligations can have a much bigger impact on the business than defaulting offshore,” said Frank Zheng, head of international fixed income at China Asset Management Co.
While global investors tend to follow market principles, onshore creditors generally have more financial ties to borrowers, Zheng said. “The structure of bondholders of onshore and offshore bonds of some developers is very different, which leads to different behavior of bondholders,” he said.
Mainland Chinese debt bankers say bond underwriters would typically survey large investors ahead of a deadline extension proposal and work with them to come to a solution before a deal goes to a vote.
Some other Chinese developers have also defaulted overseas but have managed to avoid doing so ashore.
For example, luxury developer Fantasia Holdings Group Co.
did not repay a dollar bond due in October, but did not default on any of its publicly traded yuan bonds for around $ 1 billion. In November and December, he persuaded investors to extend the maturity of two onshore bonds by two years and extend some of the upcoming interest payments of a third bond by one year.
At the same time, turmoil in the international bond markets continued for Chinese developers, with junk bonds from many issuers trading at severely downgraded levels, and the sector weathered numerous downgrades from agencies. international ratings.
For example, S&P Global Ratings downgraded R&F Properties (HK) Co. to a “selective default” rating after the company entered into a maturity extension and partial buyback of $ 725 million of bonds maturing Thursday. S&P said it viewed the deal as a troubled restructuring that “amounted to default.”
Credit scores in China are generally much higher than their international counterparts. China Chengxin International Credit Rating Co. gave Evergrande the highest triple A credit rating on the issuance of the newly extended bond agreement, and now rates the company and this bond as B. unique.
Write to Rebecca Feng at [email protected]
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