Evergrande bondholders left in the dark as crucial deadline passes

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Investors in an Evergrande offshore bond say they have yet to receive a closely watched interest payment that was due on Thursday, adding to uncertainty over an unfolding liquidity crisis at the world’s most indebted property developer.

The $83.5m payment had a deadline of midnight in New York on Thursday, or noon on Friday in Hong Kong. Two people with direct knowledge of the matter said that no payment had been received on Friday in Hong Kong.

The property group, which has not made a statement on the repayment, has a 30-day grace period before any failure to pay officially results in a default.

Evergrande, which had been widely expected to default for weeks, is at the centre of an unfolding storm over the health of China’s vast property sector as the government seeks to crack down on excessive debt.

Its woes shook global stock and commodity markets this week ahead of the impending payment deadline, as traders weighed the implications of a slowdown across a real estate industry that has anchored China’s economic growth for decades.

Evergrande’s payment deadline passed as more signs of stress emerged across China’s property sector. In a letter to the Shaoxing municipal government in eastern Zhejiang province, the local office of developer Sunac China appealed for “policy assistance” as it was struggling through what it called a “turning point in China’s real estate industry”.

“We have never experienced such a radical change in the external environment,” Sunac’s Shaoxing office said, pointing to a 60 per cent year-on-year fall in home sales over the summer.

“The market is almost frozen,” it added in the letter, which was seen by the Financial Times. “The radical change in policy and environment has seriously disrupted our business and made it very difficult to maintain normal operations.”

Two people familiar with the developer’s struggles confirmed the contents of the letter. One of the people said it reflected the views of Sunac’s Shaoxing branch but not the developer’s head office in Beijing.

Sunac did not respond to a request for comment. The Shaoxing government was not immediately available for comment.

Evergrande’s second-largest shareholder, Hong Kong developer Chinese Estates Holdings, said it was selling down its 6.5 per cent stake in the group and would realise a large loss.

A municipal government in central Anhui province also announced that it was reclaiming a plot of land on which Evergrande had missed payments.

Evergrande, which faces total liabilities of more than $300bn, warned in August of the risk of default after a rare public rebuke from Beijing. Falling prices of its debt helped push yields higher across the $400bn Asian high-yield bond market, where it is one of the biggest borrowers.

The dollar-denominated bond with interest due on Thursday has collapsed in price as investors anticipated a missed payment that would kick off the biggest restructuring process in China’s financial history. The note, which matures next year, is currently trading at $0.33 on the dollar.

Many of Evergrande’s dollar bonds were trading at about 30 cents on the dollar on Friday, signalling substantial distress, while Hong Kong-listed shares in the company fell as much as 13.5 per cent on Thursday, bringing them down more than 80 per cent this year. Shares in the company’s electric vehicle subsidiary fell as much as 22.7 per cent.

“Whether it gets paid or not will not change any of the uncertainty,” said Michel Löwy, chief executive of SC Lowy, a Hong Kong-based investment group. “[Unless there is] some form of central intervention and significant liquidity [is added] to the group, there has to be a restructuring.”

Evergrande injected a glimmer of hope into Asia trading on Wednesday when it announced it had reached an agreement with onshore bondholders for a separate interest payment due on Thursday on a renminbi-denominated bond. The company did not provide specific details.

Evergrande faces other deadlines, including a $45m payment due next Wednesday on a bond maturing in 2024. It has a total of about $20bn in outstanding debt on international markets.

Within China, Evergrande is grappling with its obligations to retail investors in wealth management products, who last week assembled at its Shenzhen headquarters to protest, as well as commitments to suppliers and contractors across its hundreds of development projects in China.

“If offshore investors get a settlement that’s 10 to 15 cents above the current trading price, I think people [will] just move on,” said one veteran investor in Chinese debt, adding that authorities would probably use Evergrande to send a message to other developers.

CCB International, the Chinese investment bank, said in a research note that the risks stemming from Evergrande were “manageable” but added that “contagion risk has spread from financing to land sales, property sales, project deliveries and home prices”.

Additional reporting by Tom Mitchell in Singapore

https://www.ft.com/content/e7c0f31d-4dff-4992-88e6-a70402b7b4bc

Simonne Stigall

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