Evergrande pays missed dollar bond coupon, says Chinese state media

Evergrande, the heavily indebted Chinese property developer, has repaid a missed interest payment on a dollar bond, state media reported, just days ahead of a deadline that would have forced a formal default.

The Securities Times reported on Friday that the real estate group had a day earlier transferred an $83.5 million (€71.7 million) interest payment to Citibank, the trustee, and that the funds would be paid to investors before the grace period expires this weekend.

Evergrande’s failure to pay the coupon by the September 23rd deadline sparked volatility across international markets and a reckoning over the health of China’s slowing real estate sector, which is under government pressure to reduce leverage.

The missed payment had triggered a 30-day grace period, which was due to expire at midnight in New York on Saturday, resulting in a default and paving the way for a group of investors with sufficient holdings of the bonds to take legal action.

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News of the last-minute payment came after a period of uncertainty for investors, but Evergrande did not provide a formal statement or regulatory filing in Hong Kong to clarify the implications for the group’s future.

Restructuring

“I don’t think this materially changes the likelihood of a restructuring taking place, though it will probably delay the immediate need for the company to engage with creditors,” said a person advising investors on the process. “I think bondholders will still be in ‘wait and see’ mode.”

Evergrande’s Hong Kong-listed shares rose as much as 7.8 per cent on Friday, putting the stock on course for its first rise since late September, when the developer revealed it had raised Rmb10 billion (€1.3 billion) by selling part of its stake in a regional Chinese lender.

Hong Kong's Hang Seng mainland properties index was up 3.43 per cent while the broader Hang Seng index was up 0.39 per cent.

The group, which faces more than $300 billion in total liabilities and has missed four other offshore interest payments over recent weeks, broke its silence on the payments in a filing on Wednesday in which it noted that the grace period had not expired.

Advisers to international bondholders had this month complained that they had no “meaningful engagement” from the company and expressed concern over its pursuit of asset sales.

Last Friday, Beijing also weighed in on the issue for the first time, with a People's Bank of China official blaming the company for its liquidity crisis but saying the spillover to the financial system was "controllable".

The China Banking and Insurance Regulatory Commission said that Evergrande was an "individual" case at a briefing in Beijing on Thursday.

Peers defaulted

Some of Evergrande's peers, including luxury developer Fantasia Group and Sinic Holdings, have defaulted on smaller bonds, while yields on riskier Chinese borrowers on international markets have soared to their highest levels since 2009.

Kaisa, another developer, has a bond interest payment due on Friday that is being closely watched. The bond is trading at 35 cents on the dollar.

Evergrande’s liquidity crisis, which has gathered pace since July and resulted in the company warning over the risk of default at the end of August, has fuelled expectations of one of the largest restructuring processes in Chinese history.

One longtime investor in Chinese real estate bonds suggested that the payment announced on Friday was a “temporary” measure meant to “buy time [and] avoid lawsuits for now”.

A more than two-week trading suspension on Evergrande was lifted on Thursday after the company disclosed that it had terminated a potential sale of its property services unit a week earlier.

The potential buyer, Hopson Development Holdings, said in a statement late on Thursday that after having sought legal advice, it considered the deal to be "legally binding".

Evergrande also said this week that it would “fully co-operate” with an inquiry into its accounts from Hong Kong’s accountancy watchdog, which is also investigating PwC’s audit of the company.

Evergrande did not immediately respond to a request for comment. – Copyright The Financial Times Limited 2021