China Evergrande Averts First Onshore Public Default

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Troubled developer’s domestic bondholders agree to six months’ relief

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Evergrande is the world’s most indebted developer, with more than $300 billion in liabilities in onshore and offshore bonds, loans from banks and shadow-banking lenders, payments from home buyers for unfinished homes, and amounts due to suppliers.

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After failing to make certain payments on dollar bonds, the company is judged in default by international rating companies.

Onshore, however, Evergrande has a somewhat strong credit rating on paper, even though it is in debt-restructuring mode and has sought government help. It has not defaulted on its 56 billion yuan, or about $8.8 billion, of outstanding publicly traded bonds and asset-backed securities, Wind data shows.

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Evergrande’s main onshore subsidiary, Hengda Real Estate Group Co, said late Thursday evening Shanghai time that holders of the 4.5 billion yuan note, after a series of meetings, voted to extend coupon payments by six months to July 8. Was. Creditors also pushed back a redemption option that could force Hengda to repurchase some of the bonds.

Many onshore bonds issued by developers are held by financial institutions, such as city-level commercial banks and trust companies, which may also have extended loans to the borrower. These creditors may be open to settlement on bond repayment if it helps avoid a default that would prompt a rush of demands for immediate repayment.

Bankruptcy and reorganization cases can take years to work their way through the Chinese legal system, and don’t always result in good results for creditors, which can make it more attractive for a borrower to deal with. Bonds and loans in China typically do not include cross-default clauses triggered by offshore events.

“For many developers, defaulting on their onshore bonds can have a far greater impact on the company than defaulting offshore,” said Frank Zheng, head of international fixed income at China Asset Management Company.

While global investors follow market principles, onshore creditors generally have greater financial ties to borrowers, Mr. Zheng said. “The bondholder structure of some developers’ onshore and offshore bonds is very different, which leads to different bondholder behavior,” he said.

Debt bankers in mainland China say bond underwriters will typically voice large investors before a proposed maturity extension, and will work with them to reach a solution before any deal is voted down.

Some other Chinese developers have also committed offshore defaults but managed to avoid doing so.

For example, luxury developer Fantasia Holdings Group Co.

It failed to repay a dollar bond maturing in October, but has not defaulted on any of its nearly $1 billion worth of publicly traded yuan bonds. In November and December, it persuaded investors to extend the maturities of two onshore bonds by two years each and some of the coming interest payments of the third bond by one year.

At the same time, international bond markets for Chinese developers continue to be in turmoil, with junk bonds from many issuers trading at deeply troubled levels, and several downgrades from international ratings firms in the region.

For example, the company concluded a maturity extension and a partial buyback of a $725 million bond coming Thursday after S&P Global Ratings cut R&F Properties’ (HK) company’s “selective default” rating. S&P said it viewed the deal as a crisis restructuring that was “similar to default”.

Credit ratings in China are generally much higher than those in international counterparts. China Chengxin International Credit Rating Company gave Evergrande the highest, triple-A credit rating when the recently extended bond deal was issued, and now gives the company and this bond a single-B rating.

Write Rebecca Feng at [email protected]


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