Chinese Evergrande Bonds Bounce As Loan Extensions Ease Default Concerns
HONGKONG / SHANGHAI, Sept. 9 (Reuters) – Bonds from heavily indebted developer China Evergrande Group (3333.HK) staged a late rally on Thursday after it was announced that some creditors had agreed to extend the loan payment.
A source told Reuters that Evergrande had asked for an extension of at least three months to the interest payment on a trust loan to CITIC Trust, one of its main fiat creditors, which was due in late August, citing cash limited.
CITIC agreed to the extension, the source directly aware of the matter said. The source added that similar deferred interest payments have been observed in the trust industry.
CITIC sent a small team to Shenzhen, where Evergrande is based, last week, but it is not optimistic that Evergrande’s liquidity will improve anytime soon, the source added, citing difficulties in finding buyers for its assets and the country’s strict mortgage policies.
News of the extensions came after a report on Wednesday said Evergrande would suspend interest payments owed on loans to two banks later this month, as well as payments for its wealth management products. The report sparked a sharp drop in the company’s bonds and onshore stocks on Thursday.
Evergrande declined to comment.
Regulators have warned that Evergrande’s 1.97 trillion yuan ($ 304.7 billion) of liabilities could trigger greater risks to China’s financial system if not stabilized.
The company, China’s second-largest real estate developer, said last September that its commitments involved more than 128 banks and more than 121 non-bank institutions. Read more
ONSHORE BONDS, ACTIONS EXTEND SLIDE
The Shenzhen Stock Exchange temporarily halted trading in two Evergrande listed bonds on Thursday after their prices fell more than 20%. After trading resumed, Evergrande’s January 2023 6.98% bond fell more than 30%, triggering a second trade freeze.
They are now trading at around a third of their face value.
Evergrande’s dollar bonds due June 2025 fell about half a cent to 24.709, but then rose more than two cents as reports of deadline extensions.
“This could end up being good news because it could draw a line in the sand,” said Siddharth Dahiya, head of emerging market corporate debt at Abrdn, formerly Standard Life Aberdeen plc.
“But we don’t know, there is very little clarity … The first reaction (from the markets) is however positive.”
Its Hong Kong-listed stock fell more than 10% to HK $ 3.32, its lowest since July 8, 2015, before cutting losses to end down 4.3%. Evergrande shares have fallen more than 76% this year.
Financial news provider REDD reported on Wednesday, citing sources with bank information, that Evergrande had told two banks it would suspend interest payments owed on loans to banks on September 21, pending further news. instructions on an expansion plan.
Evergrande has also delayed payments to several trust companies other than CITIC, REDD said, and it could suspend all payments on its wealth management products from Wednesday.
In recent days, rating agencies including Fitch, Moody’s and China Chengxin International (CCXI) downgraded a series of ratings, the latest of which rendered its yuan bonds unusable as collateral for pension funding.
On Wednesday, Fitch Ratings downgraded the ratings of Evergrande and two of its subsidiaries to âCCâ, adding that a default seems likely, due to lack of liquidity, lower contract sales, pressure to cope with late payments to suppliers and subcontractors and limited progress on asset disposals. . Read more
Fitch estimated the company would face bond interest payments of $ 129 million in September alone and $ 850 million before the end of the year. Refinitiv data shows that nearly $ 7.4 billion in onshore and offshore bonds will mature next year.
With approximately $ 20 billion in offshore bonds outstanding, Evergrande is one of the largest issuers of emerging market companies in the world.
Late last month, Evergrande warned of liquidity and default risks, and said it would adjust project development schedules, “vigorously” promote sales, renew or extend loans, cede loans. holdings and assets as well as introduce new investors to the group and its units to improve cash flow and reduce debt.
($ 1 = 6.4605 Chinese yuan)
Reporting by Cheng Leng in Beijing, Andrew Galbraith in Shanghai and Clare Jim in Hong Kong; Additional reporting by Marc Jones in London; Editing by Shri Navaratnam, Michael Perry and Kim Coghill
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