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China’s troubled property behemoth averts default for now

Reuters . Shanghai
23 Oct 2021 00:00:00 | Update: 23 Oct 2021 00:06:47
China’s troubled property behemoth averts default for now

China Evergrande Group appeared to have averted default with a last-minute bond coupon payment, a source said on Friday, buying it another week to wrestle with a debt crisis looming over the world's second-biggest economy.

The property developer sent $83.5 million to a Citibank trustee account on Thursday, the person with knowledge of the matter told Reuters, enabling it to pay interest on a US dollar bond due by Saturday.

That brought relief for investors and regulators worried about fallout for global markets and added to reassurances from Chinese officials that creditors would be protected.

Still, the world's most indebted property firm with more than $300 billion in liabilities - needs to make payments on a string of other bonds, with the next major deadline to avoid default.

With little known about its ability to pay and property sales tumbling 30 per cent in the last 12 months, there is deep scepticism over Evergrande's capacity to ride out the crisis.

The company, once China's top-selling property developer, did not respond to a request for comment.

Citibank declined to comment.

Evergrande's woes have snowballed for months and its dwindling resources set against its vast liabilities have wiped out 80 per cent of its value.

Founded in Guangzhou in 1996, the developer epitomised a freewheeling era of borrowing and building. But that business model has been scuttled by hundreds of new rules designed to curb developers' debt frenzy and promote affordable housing.

Evergrande Chairman Hui Ka Yan was quoted on Friday by the state-backed Securities Times as saying the developer would reduce its property sales to about 200 billion yuan ($31 billion) a year to overhaul its business.

It was not clear how cash-strapped Evergrande was able to raise funds to pay the bondholders or whether any had already received the money. Evergrande next needs to find $47.5 million by Oct. 29 next and has nearly $338 million in other offshore coupon payments coming up in November and December.

"While obviously a positive, the coupon payment does not address the overall concerns about Evergrande's sustained liquidity through the first maturity in Q2 2022 and beyond," said John Han, a partner at law firm Kobre & Kim in Hong Kong.

"This only shows that the company is not yet ready for the house to come down completely through a massive cascade of cross defaults. Time is needed for what is planned next."

If it fails to make next week's payment, or any other final deadlines in coming weeks, defaults would be triggered on all $19 billion of its bonds in international capital markets.

That would be the second biggest emerging market corporate default after Venezuela's state-owned oil firm.

News of the fund transfer came a day after financial information provider REDD said Evergrande had secured more time to pay a defaulted bond it guaranteed, issued by Jumbo Fortune Enterprises.

"They seem to be avoiding short-term default and it's a bit of a relief that they have managed to find liquidity," said a Hong Kong-based debt restructuring lawyer representing some bondholders.