Saturday, August 13, 2022

Evergrande’s domestic bond payment deal eases concerns

China Evergrande Group

The company is due to pay $36 million in interest on the bond by Thursday

China Evergrande Group’s main unit said on Wednesday it negotiated a deal with bondholders to settle interest payments on a domestic bond, which helped calm fears of an imminent default that could unleash global financial chaos.

China’s central bank also injected 90 billion yuan ($14 billion) into the banking system, in a sign of support as the country’s financial markets reopened and steadied after a two-day break for the Mid-Autumn Festival.

Heavily indebted Evergrande is so intertwined with China’s broader economy that its fate and fears of contagion have kept global stock and bond markets on tenterhooks.

Hengda Real Estate Group said in statement that it would settle the coupon payment due Thursday on its Shenzhen-traded 5.8% September 2025 bond, adding that the bond has already been resolved through private negotiations.

It did not provide further detail and it was unclear whether the negotiations suggested any improvement to Evergrande’s financial health or progress toward a restructure.

The company is due to pay 232 million yuan ($36 million) in interest on the bond by Thursday.

Evergrande has made no mention of an $83.5 million dollar bond interest payment also due on Thursday or $47.5 million due next week. But Hengda’s announcement seemed to stabilise broader market jitters and S&P 500 futures rose.

We are still trying to understand what this payment means for the other bonds, said a source familiar with the situation who declined to be identified as they are not authorised to speak to the media. But I imagine they would want to stabilise the market and make other coupon payments, given the close scrutiny.

Evergrande owes about $300 billion, mostly to onshore investors.

Analysts have been downplaying the risk that its possible collapse threatens a “Lehman moment”, or liquidity crunch, which freezes the financial system and spreads globally. But concerns remain over the fallout if a collapse triggers a property crash in the world’s second-largest economy.

The PBOC’s (People’s Bank of China) cash injection suggested some official attempts to contain the crisis, said Yasutada Suzuki, head of EM investment at Sumitomo Mitsui Bank in Tokyo.

I suspect that is to deal with any concerns about Evergrande and it shows the PBOC is trying to support the money market, he said.


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