Evergrande misses second offshore bond payment; some onshore investors get partial payment

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SHANGHAI/BEIJING/HONG KONG (Businesshala) – China Evergrande Group defaulted on paying bond interest due on Wednesday, two bondholders said, its second unpaid offshore debt obligation in a week, though the cash-strapped company on Thursday said some Partially paid. its onshore investors.

An exterior view of China Evergrande Group’s headquarters in Shenzhen, Guangdong Province, China, September 29, 2021. Businesshala/Allie Song

After missing $83.5 million in coupon payments last Thursday, the company, under a pile of $305 billion in debt, was due on Wednesday to make a $47.5 million bond interest payment on its 9.5% March 2024 bond.

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With liabilities as high as 2% of China’s GDP, Evergrande has raised concerns that its crisis could rip through the financial system and spread around the world, despite the central bank vowing to protect homebuyers’ interests. Anxiety has reduced somewhat after eating.

The central bank on Wednesday urged financial institutions to cooperate with relevant departments and local governments to maintain a “stable and healthy” development of the real estate market and protect the interests of housing consumers.

However, Evergrande’s silence on its offshore payment obligations has left global investors wondering whether they will incur bigger losses when the 30-day grace period for coupons expires on September 23 and September 29.

Some offshore Evergrande bondholders had received neither interest payments nor any communications by the end of Wednesday’s New York time, said people familiar with the matter, who declined to be identified due to the sensitivity of the issue.

An Evergrande spokesperson did not immediately comment. Businesshala was unable to determine whether Evergrande has told bondholders what it plans to do regarding coupon payments on Wednesday.

However, the developer’s dealings with offshore investors are contrary to the way the company manages its onshore liabilities.

Evergrande said Thursday that its wealth management arm has repaid 10% of wealth management products (WMPs), which are largely owned by onshore retail investors, through Sept.

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The payment was made on Thursday and the respective funds have been released into investors’ accounts, Evergrande said in a notice posted on its website. It did not specify how much money was given.

The two missed offshore payments come as the company, which has nearly $20 billion in offshore debt, faces a deadline next month on bond coupon payments totaling $162.38 million.

Evergrande, once China’s best-selling developer, is now expected to be one of the biggest restructurings in the country. It is prioritizing its onshore liabilities amid concerns that its troubles could trigger social unrest.

Alexander Aitken, a partner at Herbert Smith Freehills, said, “I can’t see why offshore bondholders rather than onshore banks are inclined to deliver a better outcome, let alone home buyers and those lending onshore through personal loan structures. ” in Hong Kong.

“Of course being legal offshore also has structural subordination, meaning that Evergrande’s onshore subsidiaries are paid to lenders before lenders to the parent company or any offshore loan issuers.”

resume construction

Beijing’s direct intervention to resolve Evergrande’s crisis in the form of a bailout is unlikely, but analysts say it is wary of a looming collapse that could fuel unrest.

Some instant messaging groups here had used money by Evergrande to organize protests and discuss claims that have been blocked on Tencent Holdings’ WeChat platform, group members said on Wednesday. said on Wednesday.

Disgruntled homebuyers, investors and suppliers have protested at Evergrande offices this month, though authorities have prohibited such activity. There was a visible police and security presence outside Evergrande’s headquarters in the southern city of Shenzhen on Thursday.

Authorities have prompted government-owned firms and state-backed property developers to buy some Evergrande properties in recent days to mitigate such risks.

Evergrande said on Wednesday it would sell a 9.99 billion yuan ($1.5 billion) stake in Shengjing Bank Co Ltd to a state-owned asset management company.

The bank, one of Evergrande’s main lenders, demanded that all net proceeds from the sale go toward settling the developer’s debts with Shengjing, which had 7 billion yuan in debt to Evergrande in the first half of last year.

Separately, Evergrande’s Pearl River Delta business said in a WeChat post on Tuesday that construction has resumed on about 20 developments in the area. The post showed photos of various sites and said the resumption of work had accelerated as Evergrande vowed to deliver homes to buyers at the beginning of the month.

Its main onshore arm, Hengda Real Estate Group, announced the resolution of an onshore bond coupon payment through “private negotiations” on 23 September.

Shares of Evergrande opened sharply on Thursday, rising as much as 5.21%, before reversing course, falling as much as 7.17%. The stock ended down 4%.

“Regardless of how the debt is restructured, Evergrande shareholders and investors will suffer major losses on offshore, USD-denominated corporate bonds,” Jing Sima, chief China strategist at BCA Research, said in a note.

($1 = 6.4641 Chinese Yuan)

Reporting by Anne Marie Roantree, Claire Jim, Alun John and Donny Kwok in Hong Kong, Xiao Han in Beijing, Andrew Galbraith in Shanghai; Written by Sumeet Chatterjee; Editing by Christopher Cushing, Gerry Doyle and Kim Coghilla

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