China Evergrande agreed to settle interest payments on a domestic bond. Evergrande, Asia’s biggest junk-bond issuer, is so entangled with China’s broader economy. Through direct loans and indirect holdings, many financial institutions have been exposed to Evergrande. The People’s Bank of China’s to reassure their investors, had injected 90 billion yuan to the banking system. This is for signaling support for markets.
Evergrande is scrambling to avoid defaulting on a number of bonds with payments. Hengda Real Estate Group, which is its main unit said that it had resolved one coupon payment due. It did not specify how much interest would be paid. They also didn’t mention Evergrande’s other pressing debts. Engagement with bondholders, a common way to avoid default, on top of chairman Hui Ka Yuan’s vow that Evergrande would walk out of its darkest moment. Singapore-based Dexter Tan, a senior fixed income analyst at Bondsupermart.com, said that these events seem to suggest that the company is taking control of the situation and also trying their best to work out a solution with creditors.
Evergrande was once China’s top-selling developer. They have a $47.5 million dollar-bond interest payment due. Singapore-based Chuanyi Zhou, a credit analyst at Lucror Analytics, said that they do not have a clear picture as how Evergrande settled its onshore coupon. It doesn’t look like a cash payment and may miss the coupon on offshore bonds. Evergrande’s woes have seen its shares fall 85% this year. Shares of R&F Properties and Sunac China have both slumped. Evergrande’s Hong Kong shares did not trade but rose 40% in Frankfurt.
Only $20 billion of $305 billion outstanding debts is owed offshore. But the failure risks are remaining high. Sebastien Galy of Nordea Asset Management stated in a note that there are now comparisons being made between Evergrande with the collapse of Lehman Brothers and the crash in the U.S. housing market. The reality is that it will take weeks to figure out the impact on growth given the impact on the real estate market.
There is also mounting political pressure to act as the anger of retail investors. Some funds have been increasing their positions also. BlackRock and investment banks HSBC and UBS have been among the largest buyers of Evergrande’s debt. Brad McMillan, chief investment officer for Commonwealth Financial Network wrote in a note that despite the worry, so far this looks like a corporate bankruptcy. But can be handled by the system.