Evergrande’s debt deadline passes when Kaisa contributes to China’s real estate crisis

HONG KONG / SHANGHAI, DECEMBER 7 (Reuters) – Some offshore bondholders in China Evergrande Group (3333.HK) did not receive coupon payments by a 30-day deadline, said five people with knowledge of the case, and the pressure on cash-limited real estate developers closer formal default.

To add to the liquidity crisis in China’s once bubbling real estate market, it was unlikely that the smaller peer Kaisa Group Holdings (1638.HK) kept its offshore debt deadline of $ 400 million on Tuesday, a source with direct knowledge of the case said. .

If Evergrande fails to pay $ 82.5 million in interest payments due last month, it will trigger cross-default on its international bonds of around $ 19 billion and put the developer at risk of becoming China’s largest defaulter – an opportunity that threatens the world’s second largest economy of several months.

Failure to pay by Kaisa would force the 6.5% bond of Kaisa, China’s largest offshore debt developer among Evergrande developers, into technical default, triggering cross-default on offshore bonds totaling nearly $ 12 billion.

Evergrande did not respond to Reuters’ request for comment. Kaisa, which in 2015 became the first Chinese developer to default on an offshore bond, declined to comment.

All the sources refused to be named as they were not authorized to speak to the media.

Evergrande was once China’s best real estate developer, with more than 1,300 real estate projects. With $ 300 billion in liabilities, it is now at the heart of a real estate crisis in China this year that has shattered nearly a dozen smaller firms.

The government has repeatedly said that Evergrande’s problems can be limited, and measures to increase liquidity in the banking sector together with the company’s plans to proceed with a restructuring of its foreign debt have helped reassure global investors.

Strategist Kenny Ng at Everbright Sun Hung Kai Securities said investors had expected Evergrande to default and “just waited to see when this would happen”.

“At the same time, investors are following the development of Evergrande, including whether it is heading for debt restructuring or the plan to repay creditors,” said Ng.

Evergrande has not issued any communication to the bondholders about the lost payment, said one of the five sources.

The developer had said Monday that it had set up a risk management committee that included government officials to help “combat and eliminate future risks”. read more

It came after it said that creditors had demanded $ 260 million and that they could not guarantee funds to repay debt, which led the authorities to summon the chairman of the board and assure the markets that greater risk could be limited. read more

The rating agency S&P said on Tuesday that the repayment claim of 260 million dollars showed that Evergrande’s liquidity remained “extremely weak”, with a default that seems inevitable, especially given maturities of a total of 3.5 billion dollars in March and April 2022.

THE BUSINESS MODEL SHOT

So far, any Evergrande fallout has been limited in China, and with policy makers becoming more vocal and markets more aware of the problem, the consequences of the problems are less likely to be felt, market observers have said.

Government involvement and hopes of managed debt restructuring helped lift the Evergrande share as much as 8.3% a day after plunging 20% ​​to a record low. Nevertheless, it ended up only 1.1% on Tuesday while bonds continued to trade at emergency levels.

Banknotes maturing on November 6, 2022, – one of two tranches with a coupon payment deadline that passed Monday midnight in New York – traded at 18,282 cents on the dollar, Duration Finance data showed, little changed from a day earlier.

Evergrande was founded in 1996, and symbolized a freewheeling era with loans and construction. But that business model was rejected by hundreds of new rules designed to curb developers’ debt craze and promote affordable housing.

Evergrande became one of several developers who later starved for liquidity, which led to defaults on offshore debt and downgrades of credit ratings, and a drop in the value of developers’ shares and bonds.

A number of developers have struggled to raise funds by selling shares and assets. Only a few have found takers.

Shimao Group (0813.HP) and Logan Group (3380.HP) both announced on Tuesday an additional share placement to raise around $ 150 million each, while Guangzhou R&F Properties (2777.HK) said they had agreed to sell one 30% stake in a logistics park in Guangzhou.

For Kaisa, the risk of default arose after it failed to enter into a banknote swap agreement with the bondholders last week.

To avoid default, bondholders who own more than 50% of certificates maturing on December 7 and Kaisa notes worth a total of $ 5 billion sent the company a draft terms of late late Monday, a separate source with direct knowledge of the case.

Even in the event of a technical default, Kaisa and offshore bondholders can discuss the terms of tolerance, said two sources with knowledge of the case.

Kaisa, whose shares rose 1.1% on Tuesday, said it was open to discussion of indulgence, without elaborating.

Sources said earlier that bondholders had offered Kaisa $ 2 billion in financing last month, but the offer had not progressed. read more

($ 1 = 7.7998 Hong Kong dollars)

Reporting by Clare Jim and Scott Murdoch in Hong Kong and Andrew Galbraith in Shanghai; Edited by Sumeet Chatterjee, Christopher Cushing and Edmund Blair

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