The China Evergrande Group has started repaying a small portion of the money owed to buyers of its investment products, weeks after people protested the missed payments at its Shenzhen headquarters, pictured here on September 30, 2021.
Gilles Sabrie | Bloomberg | Getty Images
After having vacillated from maturity to maturity, China Evergrande Group is once again on the verge of default, with its pessimistic comments condemning its stock to an all-time low even though the direct involvement of the State gives hope for a controlled restructuring of the debt.
After making three 11-hour coupon payments in the past two months, Evergrande is once again facing the end of a 30-day grace period on Monday, with dues totaling $ 82.5 million.
But a statement Friday saying that creditors had demanded $ 260 million and that he could not guarantee funds for the redemption of the coupons prompted authorities to summon his president – and wiped out a fifth of the value of his actions Monday.
Evergrande, once China’s best-selling developer, is grappling with over $ 300 billion in liabilities, meaning a messy collapse could spill over to the real estate industry and beyond.
His statement on Friday was followed by one of the authorities in his home province, Guangdong, saying they would send a team at Evergrande’s request to oversee risk management, strengthen internal control and maintain operations – the first public measure by the State to intervene directly to manage the fallout.
The central bank, the banking and insurance regulator and the securities regulator have also issued statements, saying the risk to the real estate sector could be contained.
Analysts said the authorities’ concerted efforts have indicated that Evergrande has likely already entered a process of managed debt restructuring.
Morgan Stanley said such a process would involve coordination between authorities to maintain operations of real estate projects and negotiations with onshore creditors to secure funding for project completion.
Regulators would also likely facilitate debt restructuring talks with offshore creditors once operations stabilize, the U.S. investment bank said in a report.
After the flurry of statements, Evergrande shares plunged 20% on Monday to close at an all-time low of HK $ 1.82.
Its November 2022 bond – one of two bonds that could default if defaulted on Monday – was trading at the troubled price of 18.560 US cents to the dollar, down from 20.083 cents at Friday’s close.
Evergrande is struggling to raise capital through asset sales, and the government has asked President Hui Ka Yan to use his wealth to pay off the company’s debt.
The company is just one of many developers deprived of liquidity due to regulatory restrictions on borrowing, causing overseas defaults, credit downgrades and sales of stocks and bonds. developers.
To stem the unrest, regulators since October have urged banks to ease lending for normal developers’ financing needs and allowed more real estate companies to sell domestic bonds.
To free up funds, Premier Li Keqiang said on Friday that China would reduce the reserve requirement ratio of banks “in due course”.
Still, the government may need to significantly step up policy easing measures in the spring to avoid a sharp slowdown in the real estate sector as pressure on repayments intensifies, Japanese investment bank Nomura said in a report on Sunday. .
Quarterly dollar bond repayments will nearly double to $ 19.8 billion in the first quarter and $ 18.5 billion in the second.
Still, easing measures such as the ability to sell domestic bonds are unlikely to help Evergrande refinance as there would be no demand for its notes, CGS-CIMB Securities said on Monday.
Evergrande’s inability to sell projects – with almost zero sales in November – also makes short-term debt payments “highly unlikely,” the brokerage said.
Small developer Sunshine 100 China Holdings Ltd on Monday said it had defaulted on a $ 170 million bond due December 5 “due to liquidity issues resulting from the negative impact of a number of factors. , in particular the macroeconomic environment and the real estate sector “.
The default will trigger cross-default clauses under certain other debt instruments, he said.
Last week, Kaisa Group Holdings Ltd – China’s largest offshore debtor among developers after Evergrande – said bondholders rejected an offer to exchange its 6.5% offshore bonds due Dec. 7 , thus leaving it exposed to a risk of default.
The developer has started talks with some of the bondholders to extend the $ 400 million debt repayment deadline, sources told Reuters.
Last week, its smaller rival, China Aoyuan Property Group Ltd, also said that creditors demanded repayment of $ 651.2 million due to a series of rating downgrades, and that it may not. be able to pay due to lack of cash.
Aoyuan Chairman Guo Zi Wen told executives at an internal meeting on Friday to have a “wartime mindset” to ensure the operation and delivery of the project and to fund the payback. a person with first-hand knowledge of the matter told Reuters.
These tasks will be priorities for the developer, who will leave the negotiation of the repayment of the bonds to professional institutions in Hong Kong, the person said, declining to be identified because the matter is private.
Aoyuan did not respond to a request for comment.
The developer’s share price fell nearly 8% on Monday. Kaisa lost 3.8% while Sunshine 100 plunged 14%.