Evergrande is heading towards restructuring; State intervenes to contain the risk

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  • Evergrande says there is no guarantee that it will pay off $ 82.5 million in debt
  • Allegedly, creditors have also requested a $ 260 million repayment
  • Authorities appoint chairman; Stocks fall 20% to all-time lows
  • A disorderly collapse could permeate the real estate sector

HONG KONG, Dec 6 (Reuters) – China Evergrande Group (3333.HK) set up a risk management committee as the insolvent real estate developer moves closer to a debt restructuring that has been emerging in global markets and the world’s second largest for months. largest economy.

The real estate giant, struggling with over $ 300 billion in debt and at risk of becoming China’s largest default of all time, said Monday that the committee includes government officials and has an important role in “mitigation and Eliminating future risks “would play” from the group.

On Friday, Evergrande said it would seek to restructure its offshore debt after admitting it may be unable to meet its financial obligations in the fallout. Continue reading

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“Evergrande has tried to sell assets to pay off debts, but Friday’s statement essentially says she is going to” give up “and need help,” said Conita Hung, director of investment strategy at Tiger Faith Asset Management. “That sends a very bad signal.”

Evergrande stock slumped to a record low on Monday as it floated again on the verge of default with the end of a 30-day grace period with impending fees totaling $ 82.5 million.

At the end of business hours in Asia, two bondholders said they had not received any payments.

Evergrande, which has historically made coupon payments in the 11th hour, declined to comment.

If Evergrande were officially declared insolvent, it would spark a wave of mutual defaults that spread through the property sector and beyond, potentially shaking global investor confidence, already shaken by the advent of the Omicron variant of the coronavirus. Continue reading

“Until there is another announcement, everyone is waiting to see whether this time will be the first real trigger event. That contrasts with the expected feverish stock market this week, ”said Karl Clowry, partner at Addleshaw Goddard in London.

Reuters Graphics Reuters Graphics

The Chinese authorities have stepped up efforts to reassure markets that Evergrande’s problems can be contained.

As the latest move, the Chinese central bank announced on Monday it would cut banks’ cash reserves, its second move this year to free up $ 188 billion in long-term liquidity to support slowing economic growth. Continue reading

Evergrande’s shares plunged 20% on Monday to close at an all-time low of HK $ 1.81 after it was announced late Friday that creditors had requested $ 260 million and that they had no funds to pay back the coupons could guarantee, which led the authorities to convene their chairman.

Analysts said the concerted efforts of the authorities signaled that Evergrande is likely already entering a managed debt restructuring process.

Morgan Stanley said such a process would include coordination between authorities to keep real estate projects running and negotiating with onshore creditors to secure funding for project completion.

Regulators would also likely facilitate debt restructuring talks with offshore creditors after operations stabilize, the U.S. investment bank said in a report.

The recent slump in Evergrande’s dollar-denominated bonds accelerated when its March 2022 issue fell 4.35 cents in dollar terms to 27.7 cents, while other issues such as the 2024 and 2025 bonds fell to record lows below 20 cents, such as MarketAxess data showed.

A traffic light can be seen near the headquarters of the China Evergrande Group in Shenzhen, Guangdong Province, China, Sept. 26, 2021. REUTERS / Aly Song

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LIQUIDITY CRUSH

The company is just one of a number of developers who have suffered from liquidity due to regulatory restrictions on borrowing that have resulted in offshore debt defaults, credit downgrades, and developer stock and bond sell-offs.

To contain the turmoil, regulators have been urging banks since October to ease lending for developers’ normal financing needs and allowing more real estate firms to sell domestic bonds. Continue reading

Still, the government may need to step up monetary easing measures significantly in the spring to prevent a sharp downturn in the property sector as repayment pressures mount, Japanese investment bank Nomura said in a report on Sunday.

Quarterly dollar bond repayments will nearly double to $ 19.8 billion in the first quarter and to $ 18.5 billion in the second.

Easing measures like the ability to sell domestic bonds are unlikely to help Evergrande refinance as there would be no demand for its bonds, CGS-CIMB Securities said on Monday.

Evergrande’s inability to sell projects – with nearly zero sales in November – also makes short-term debt payments “very unlikely,” the brokerage firm said.

On Monday, smaller developer Sunshine 100 China Holdings Ltd (2608.HK) announced that it had a $ 170 million bond due on the 5th Real Estate Industry ”

The defaults will trigger cross-definition provisions on certain other debt instruments, it said.

Last week, Kaisa Group Holdings Ltd (1638.HK), China’s largest offshore debtor among developers after Evergrande, said bondholders had rejected an offer to exchange their 6.5% offshore bonds due on December 7, creating a Payment default threatens.

The developer has started talks with some bondholders to extend the $ 400 million debt repayment deadline, sources told Reuters. Continue reading

Lesser rival China Aoyuan Property Group Ltd (3883.HK) also said last week that due to a series of credit downgrades, creditors have requested repayment of $ 651.2 million and that it may not be in the country due to a lack of liquidity Is able to pay. Continue reading

Aoyuan chairman Guo Zi Wen told executives at an internal meeting on Friday to have a “war mentality” to keep the project running, run and fund repayments, a person with direct knowledge of the matter told Reuters.

Such tasks will be a priority for the developer, who will leave the negotiation of the repayment of the bonds to professional Hong Kong institutions, the person said, declining to be identified as the matter is private.

Aoyuan did not respond to a request for comment.

The developer’s share price fell nearly 8% on Monday. Kaisa lost 2.2% and Sunshine 100 slumped 14%.

($ 1 = 6.3724 Chinese yuan renminbi)

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Reporting by Clare Jim in Hong Kong; Additional reporting to Shuyan Wang in Beijing and Andrew Galbraith in Shanghai; Adaptation by Anne Marie Roantree, Jason Neely and Carmel Crimmins

Our Standards: The Thomson Reuters Trust Principles.


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