China Evergrande sticks to the debt deadline after doubting solvency

HONG KONG, December 6 (Reuters) – After going from deadline to deadline, China Evergrande Group (3333.HK) is back on the brink of default, with pessimistic comments from the property developer raising expectations of direct government involvement and a managed debt restructuring .

After making three 11-hour coupon payments over the past two months, Evergrande will once again face the end of a 30-day deadline on Monday, with a contingent this time of $ 82.5 million.

But a statement late Friday that said creditors had demanded $ 260 million and that they could not guarantee enough funds to repay coupons, prompted authorities to summon the chairman – and deleted more than one-sixth of the stock’s market value on Monday.

Evergrande was once China’s best-selling developer, but is now struggling with more than $ 300 billion in liabilities, which means a collapse could sweep through the real estate sector and beyond.

The statement on Friday was followed by a statement from Guangdong Home Government, which said it would send a team to Evergrande at the developer’s request to monitor risk management, strengthen internal controls and maintain operations.

The central bank, the banking and insurance regulator and the securities regulator also issued statements stating that the risk to the broader real estate sector could be limited.

Short-term risk from a single real estate company will not undermine market financing in the medium or long term, said the People’s Bank of China. Home sales, land purchases and financing “have already normalized in China”, it is said.

Analysts said the authorities’ concerted efforts signaled that Evergrande had probably already embarked on a managed debt and asset restructuring process to reduce systemic risk.

Morgan Stanley said in a report that such a process would involve coordination between the authorities to maintain normal operation of real estate projects, and negotiations with creditors on land to ensure financing of project development and completion.

Regulators are also likely to facilitate debt restructuring discussions with offshore creditors after business operations begin to stabilize, the US investment bank said.

Following the wave of statements, Evergrande’s share fell as much as 15% on Monday to HK $ 1.92 – the lowest since May 2010.

The bond in November 2022 – one of two bonds that may default on non-payment on Monday – was traded at the distressed price of 20,787 US cents on the dollar, compared to 20,083 cents at the end of Friday.

LIQUIDITY SCREEN

Evergrande has struggled to raise capital by disposing of assets, and the government has asked chairman Hui Ka Yan to use his fortune to repay the company’s debt. read more

The company is just one of a number of developers facing a unique liquidity squeeze due to regulatory restrictions on borrowing, causing a number of offshore debt defaults, downgrades of credit ratings and the sale of developers’ shares and bonds.

To prevent further unrest, since October, regulators have encouraged banks to relax lending to developers’ normal financing needs and allowed more real estate firms to sell domestic bonds. read more

In order to free up funds in the banks, Prime Minister Li Keqiang said on Friday that China will cut the bank’s reserve requirements (RRR) “at the right time” to increase support for the real economy. read more

Nevertheless, the government may have to step up policy easing significantly during the spring to prevent a sharp decline in the real estate sector, the Japanese investment bank Nomura said in a report published on Sunday.

INFECT

The smaller developer Sunshine 100 China Holdings Ltd (2608.HK) said on Monday that it had defaulted on a bond of USD 170 million maturing on December 5 “due to liquidity problems arising from the negative impact of a number of factors, including the macroeconomic environment and the real estate industry “. read more

The crime will trigger cross-default provisions under certain other debt instruments, the developer said.

Shares fell almost 3 percent.

Last week, Kaisa Group Holdings Ltd (1638.HK) – the largest offshore debtor among Chinese developers after Evergrande – said it had failed to secure approval from offshore bondholders to make a swap offer of its 6.5% offshore bond. bonds maturing on December 7, without which it said it would risk default.

The developer has initiated talks with some of the bondholders offshore to extend the deadline for repayment of the debt of 400 million dollars, sources told Reuters. read more

The minor rival China Aoyuan Property Group Ltd (3883.HK) also said last week that creditors have demanded repayment of 651.2 million dollars due to a number of downgrades of the credit rating, and that they may not be able to pay on due to lack of liquidity. read more

Reporting by Clare Jim in Hong Kong; Additional reporting to Shuyan Wang in Beijing; Edited by Anne Marie Roantree and Christopher Cushing

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