The Evergrande Group has reportedly made an overdue US$83.5 million interest payment to its overseas bondholders, a move that will allow the heavily indebted Chinese property developer to avoid default before a 30-day grace period expires on Saturday.
Evergrande wired the funds on Thursday to a Citibank account of its client, who will then pay bondholders by Saturday, according to Chinese state media Securities Times. Evergrande, one of China’s largest property developers, will still owe some $193 million in interest on its US bonds in the coming weeks, the report said.
A default would have likely ignited one of the biggest corporate defaults in Asia, by enabling creditors to declare defaults on some of Evergrande’s other debts.
Although the payment allowed the company to avoid imminent bankruptcy, analysts say it will need between one to two years to dispose of assets and repay debts as other property developers have been hesitant to buy into its many distressed property projects due to concerns of hidden debts.
The latest US bond payment was seen as a pleasant surprise for the Shenzhen-based Evergrande, which recently failed to sell its Hong Kong headquarters building in Wan Chai to Yuexiu Properties and a 50.1% stake in Evergrande Property Services Group to Hopson Development Holdings.
Shares of Evergrande rose 4.3% to HK$2.69 (34.6 US cents) on Friday on the dollar bond interest payment news. Evergrande’s Hong Kong-listed shares have crashed more than 80% this year and its dollar bonds are trading far below face value.
On September 23 and 29, Evergrande failed to pay interest of $83.5 million and $45 million, respectively, to global investors who hold its bonds. Evergrande had a 30-day grace period to make payment before bondholders could send a notice of default to the company.
On October 11, the company was again unable to pay $148 million in interest to its bond investors. After paying the interest of $83.5 million on Thursday, the company will have to make the next coupon payment of US$45 million by October 29, or it will be forced by creditors to liquidate its assets.
On Thursday, Hopson Development said Evergrande should have sold the stake in Evergrande Property Services for HK$20 billion, or HK$3.7 per share, on October 12 but the deal was not completed.
A research report of JPMorgan Chase said that the offer price of Evergrande Property Services’ shares was 28% below the level before the trading of its shares was suspended on October 4. JPMorgan Chase predicted it would take about one to two years for the company to dispose of its assets.
The report also said it was likely that Evergrande would be forced to sell the assets of Evergrande Property Services individually, as no single property developer could absorb its entire land reserves in one go.
“The winter of the property sector has come. All people have to resolve their own problems. Rescuers must ensure their own safety,” Yu Liang, chairman of residential real estate developer China Vanke, said on Thursday when asked if his company would purchase any of Evergrande’s assets.
“If we have the ability, we will proactively consider options to do something that the industry will benefit from. If we are given some concrete opportunities, we will consider them under market principles.”
Liu Zhongrui, a China Banking and Insurance Regulatory Commission official, said Evergrande’s debt crisis was an individual case and would not have a big impact on China’s property markets and Chinese property companies’ reputation, which he said was buttressed by the stable growth of the Chinese economy.
Liu added that financial debt accounted for less than one-third of Evergrande’s total liabilities of $300 billion and that the overall risks were manageable – a leitmotif in recent official comments on the company. He said financial regulators and local governments are taking steps to reduce the risks of Evergrande’s debt problems under market principles.
That market is fast-contracting. Contracted homes sales at many developers fell more than 20% or 30% year-over-year in September. Official government statistics show nationwide new-home prices fell slightly last month for the first time since 2015, the Wall Street Journal reported.
This week, Evergrande said in a statement that its contracted sales “for the month of September 2021 and up till now” totaled just $572 million, a cliff fall from the $28.5 billion worth of contracted sales it reported in the full two months of September and October last year.
On Thursday, Evergrande said in a filing to the Hong Kong stock exchange that its 30-day grace period to pay interest after it becomes due on its US bonds had not expired. It also said it would continue to implement measures to ease its liquidity issues.
On September 28, the company announced it would sell its 19.9% stake in Shengjing Bank to a unit of the State-owned Assets Supervision and Administration Commission of the Shenyang municipal government for 10 billion yuan ($1.57 billion). As of Thursday, there had been no clear material progress on the deal.
Financial Reporting Council (FRC), a full-fledged independent auditor regulator in Hong Kong, said on October 15 it had initiated an inquiry into Evergrande’s financial statements after identifying questions about the adequacy of the reporting on going concerns in the company’s 2020 annual accounts and 2021 interim accounts.
FRC also started an investigation into the audit carried out by PricewaterhouseCoopers, which it said failed to make reference to going concern material uncertainties.
The FRC pointed out that as at December 31, 2020, Evergrande reported cash and cash equivalents of 159 billion yuan that did not cover its current liabilities of 1.51 trillion yuan. It also said Evergrande had further borrowings of 167 billion yuan that will mature in 2022.