Evergrande faces moment of truth as payments loom

Chinese property giant veers toward collapse, its unpaid debts spark protests

China Evergrande Group bondholders are about to find out if the property giant’s liquidity crisis is as dire as it appears.

Interest payments on two Evergrande notes come due on Thursday, a key test of whether the developer will continue meeting obligations to bondholders even as it falls behind on payments to banks, suppliers and holders of onshore investment products. Investors are pricing in a high likelihood of default, with one of the notes trading at less than 30 per cent of face value.

Market concern

Concern over Evergrande’s ability to make good on $300 billion of liabilities is spilling into China’s financial markets. Shares of other real estate firms have plunged, while the yield on an index of dollar-denominated junk bonds has climbed to about 14 per cent, the highest in nearly a decade. The People’s Bank of China injected $14 billion of short-term cash into the financial system on Friday in a sign policymakers want to soothe nerves.

The Evergrande payments due Thursday include $83.5 million of interest on an 8.25 per cent, five-year dollar bond, Bloomberg-compiled data show. There is a 30-day period before a missed payment is considered a default, according to the bond’s covenants. Evergrande needs to pay a 232 million yuan ($36 million) coupon on an onshore bond the same day. In total, Evergrande has $669 million in coupon payments coming due through the end of this year. $615 million of that is on dollar bonds, Bloomberg-compiled

data show. Fitch Ratings flagged the increased chance of a payment failure this month when it slashed the firm’s credit grade even deeper into junk territory, citing the risk of “probable” default.

Debt pile

Bond investors are rushing to lock in professional help as a potential restructuring for Evergrande edges closer to reality. Addleshaw Goddard has engaged with some of the company’s bondholders and is preparing to establish a creditor committee to negotiate with Evergrande.