Several bondholders reportedly received late coupon payments, meaning that cash-strapped developer China Evergrande Group avoided a destabilising default for the third time in the previous month.
Evergrande Dodges Default Again but Sector debt Concerns Remain
The world’s most indebted real estate developer, Evergrande, has been late with every deadline in recent weeks.
More than $300 billion in debt needs to be serviced, with bonds issued on international markets accounting for $19 billion of that total.
Several bondholders, according to the Chinese news outlet Cailianshe, have received the over $148 million in interest payments over three bond tranches that were due last month.
Like two other coupon payments due in late September and with grace periods that concluded late last month, these payments were made at the end of a 30-day grace period that ended yesterday.
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Should the business have defaulted on the payment, cross-default provisions would have been activated for all other Evergrande dollar bonds.
That would have made things far worse for the world’s second-largest economy, whose debt crisis has already spooked investors around the world.
Evergrande, the epicentre of a worsening liquidity constraint in China’s $5 trillion property market, declined to comment to Reuters on its most recent bond coupon payment.
Despite the developer’s success in avoiding a second default, mounting debt in the real estate sector remained a major concern.
More than $255 million in coupon payments are due on December 28 from Evergrande. The company is facing pressure from domestic creditors, and a lack of available capital is threatening hundreds of its residential construction projects.
Investors are starting to look beyond just Kaisa Group at other cash-strapped firms with many upcoming offshore obligations.
Kaisa, the second-largest Chinese property developer after Evergrande, has asked its creditors for aid this week because it has the biggest offshore debt of any Chinese property company. Over $59m in coupon payments are due today and tomorrow.
In 2015, Kaisa became the first Chinese property firm to default on an international bond, and the company has already fallen behind on payments for some domestic wealth management products.
This week, the Federal Reserve of the United States expressed concern that China’s unstable real estate market could pose threats to the global economy. However, it remains unclear whether Beijing will intervene with a comprehensive national plan to address the problem.
However, in recent weeks, Chinese officials have sought to calm investors and homeowners by stating risks were manageable and excessive loan restriction by banks was being remedied.
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Conclusion
The market is anticipating a softening in loan and housing policies to prevent a hard landing of the industry after regulators and government think tanks met with developers over the previous few weeks.
As a result of these expectations and Evergrande’s payment, Chinese property shares saw a relief rally, sending the benchmark index of real estate A-shares up by nearly 8% and the benchmark index for mainland Chinese properties traded in Hong Kong up by more than 3%.
