China’s troubled property behemoth averts default, signals business shift
HONG KONG/SHANGHAI (Reuters) – China Evergrande Group appeared to have averted default with a last-minute bond coupon payment, a source said on Friday, buying it another week to wrestle with a debt crisis looming over the world’s second-biggest economy.
The property developer also announced plans to give future priority to its electric vehicles business over real estate.
Facing a deadline on Saturday to pay interest on a US dollar bond, Evergrande sent $83.5 million to a Citibank trustee account on Thursday, the person with knowledge of relief for investors the matter told Reuters. fallout That brought for global markets and regulators worried about and added to reassurances from Chinese officials indebted that creditors would be protected. property firm Still, the world’s most – with more than $300 billion in liabilities – needs to make payments on a string of other avoid default bonds, with the next major deadline ability to on Oct. 29. pay With little known about its and property sales tumbling 30 percent in the last 12 months, there is deep skepticism over Evergrande’s capacity to ride out the crisis.
The company, once China’s topselling property developer, did not respond to a request for comment on debt payment. Citibank declined to comment. Evergrande chairman Hui Ka Yan said on Friday the company would aim to make its new electric vehicle venture its primary business instead of property within 10 years.
Property sales will slow to about 200 billion yuan ($31.31 billion) per year by that time, compared to more than 700 billion yuan last year, he was quoted as saying by the statebacked
vehicle business, Securities Times. Evergrande’s new
founded in 2019, has yet to reveal a production model or sell a single vehicle. Last month, the unit warned it was still seeking new investors and asset sales, and that without either it might struggle to pay salaries and cover other expenses.
Evergrande’s overall woes have snowballed for months and its dwindling resources set against its vast liabilities have wiped out 80 percent of its value.
Founded in Guangzhou in 1996, the developer epitomized a freewheeling era of borrowing and building. But that business model has been scuttled by hundreds of new rules designed to curb developers’ debt frenzy and promote affordable housing.
It was not clear how cashstrapped Evergrande was able to raise funds to pay the bondholders or whether any had already received the money. Evergrande next needs to find $47.5 million by Oct. 29 and has nearly $338 million in other offshore coupon payments coming up in November and December.
“While obviously a positive, the coupon payment does not address the overall concerns about Evergrande’s sustained liquidity through the first maturity in Q2 2022 and beyond,” said John Han, a partner at law firm Kobre & Kim in Hong Kong.
“This only shows that the company is not yet ready for the house to come down completely through a massive cascade of cross defaults. Time is needed for what is planned next.”
If it fails to make next week’s payment, or any other final deadlines in coming weeks, defaults would be triggered on all $19 billion of its bonds in international capital markets.
That would be the second biggest emerging market corporate default after Venezuela’s state-owned oil firm.
Evergrande missed coupon payments totalling nearly $280 million on its dollar bonds on Sept. 23, Sept. 29 and Oct. 11, beginning 30-day grace periods for each.
Evergrande’s dollar bond prices surged on Friday morning after news of the transfer, with its April 2022 and 2023 notes jumping more than 10 percent, data from Duration Finance showed, though they still traded at deeply distressed levels of less than a quarter of face value.
Those gains evaporated on Friday afternoon in Asia, however, pushing several of the company’s other bonds down more than six percent.
Evergrande’s shares rose as much as 7.8 percent before closing up 4.3 percent, but still finished a shortened week down 8.8 percent.
Evergrande’s woes have reverberated across the $5 trillion Chinese property sector, which accounts for a quarter of the economy by some metrics, with a string of default announcements, rating downgrades and slumping corporate bonds.
Chinese property companies could now be locked out of offshore debt markets until early next year.
Asked whether it would step in to help its rival ease its liquidity crisis, the chairman of China’s third-biggest developer, China Vanke Co. Ltd., said developers needed to ensure their own safety first.
“Everyone feels the chill as ‘winter’ arrives for the sector,” Chairman Yu Liang told a company forum.
Any prospect of Evergrande’s demise raises questions over more than 1,300 real estate projects it has in some 280 cities.
Bank exposure to developers is also extensive.
A leaked 2020 document, branded a fake by Evergrande but taken seriously by analysts, showed the company’s liabilities extended to more than 128 banks and over 121 non-banking institutions.