By
Steve Muchoki
April 25th, 2024
The China Evergrande debt situation further develops as the embattled firm faces key upcoming bond interest payments scheduled for tomorrow.
Evergrande Group (HKG: 3333), the second-largest property developer in China, announced on Wednesday that it would make a domestic bond interest payment on September 23rd. The major real estate company arrived at this decision after private negotiations with bondholders, as it faces a massive loan default. Hengda Real Estate Group Co Ltd said Evergrande’s coupon payment will be a Shenzhen-traded 5.8% September 2025 bond.
Furthermore, Evergrande is also fast approaching a key deadline for an $83.53 million interest payment on a dollar bond. In addition, the company has another $47.5 million due September 29th for March 2024 notes. Evergrande is yet to indicate whether it will be able to make the latter bond payments. If the Chinese real estate company fails to settle the interest within a 30-day window, then both bonds would default. Hengda Real Estate’s coupon payment by comparison totals $35.88 million, according to Refinitiv data. A source familiar with the matter gave a situational report:
“We are still trying to understand what this payment means for the other bonds but I imagine they would want to stabilize the market and make other coupon payments, given the close scrutiny”.
Evergrande’s onshore exchange-traded bond trades discontinued since September 16th after Hengda Real Estate applied for a one-day trading suspension. Since its resumption, trading now only happens in negotiated transactions – in an attempt to limit volatility.
Because Evergrande plays such a pivotal role in the broader Chinese economy, fears over contagion have kept financial markets on edge. According to a Tuesday research note from analysts at Bespoke, a New York-based firm:
“There’s been a fair bit of concern about the possibility of contagion, but so far that concern isn’t showing up in parts of the credit markets that have served well as red flags for broader credit crunches in the past.”
US Seems Unfazed by the Contagion Threat Stemming from the China Evergrande Situation
Sources familiar with the issue said Evergrande missed interest payments due Monday to two of its largest bank creditors. However, the default was anticipated as China’s housing ministry had already heralded it, according to Bloomberg. As equities markets around the globe try to prevent a degeneration, the SEC remains unperturbed. Gary Gensler, Chairman of the SEC, suggested the US market will fare much better than during the 2007-09 crisis.
Fed Chair, Jerome Powell, is expected to speak upon the conclusion of the Fed’s two-day meeting on Wednesday. The general consensus is that he will likely field questions about the Evergrande fallout.
However, despite Evergrande’s ongoing problem, some funds are continually buying into the beleaguered company. The largest buyers in recent months include fund giant BlackRock and investment banks HSBC and UBS. Others include UBS Asset Management and Amundi, the largest asset manager in Europe.
There are already distant talks of a Beijing bailout for Evergrande, and S&P Global Ratings also expressed their opinion. The American firm believes only the threat of a far-reaching contagion within the economy will jolt the Chinese government into action.