China Evergrande braces for debt maturity after doubting ability to pay

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  • Evergrande does not guarantee he can repay $ 82.5 million in debt
  • Creditors also asked for a repayment of $ 260 million
  • The authorities summon the president; stocks fall 20% to all-time low
  • A messy collapse could spill over to the real estate industry

HONG KONG, Dec.6 (Reuters) – After wobbling from one deadline to the next, China Evergrande Group (3333.HK) is once again on the brink of failure, with its pessimistic comments dooming its action at an all-time high. that the direct involvement of the State raises the hope of a restructuring of the managed debt.

After making three 11-hour coupon payments in the past two months, Evergrande is once again facing the end of a 30-day grace period on Monday, with dues totaling $ 82.5 million.

But a statement Friday saying that creditors had demanded $ 260 million and that he could not guarantee funds for the redemption of the coupons prompted authorities to summon his president – and wiped out a fifth of the value of his actions Monday. Read more

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Evergrande, once China’s best-selling developer, is grappling with over $ 300 billion in liabilities, meaning a messy collapse could spill over to the real estate industry and beyond.

His statement on Friday was followed by that of authorities in his home province, Guangdong, saying they would send a team at Evergrande’s request to oversee risk management, strengthen internal control and maintain operations – the first public measure by the State to intervene directly to manage the fallout.

The central bank, the banking and insurance regulator and the securities regulator have also issued statements, saying the risk to the real estate sector could be contained.

Analysts said the authorities’ concerted efforts have indicated that Evergrande has likely already entered a process of managed debt restructuring.

Morgan Stanley said such a process would involve coordination between authorities to maintain operations of real estate projects and negotiations with onshore creditors to secure funding for project completion.

Regulators would also likely facilitate debt restructuring talks with offshore creditors once operations stabilize, the U.S. investment bank said in a report.

After the flurry of statements, Evergrande shares plunged 20% on Monday to close at an all-time low of HK $ 1.82.

Its November 2022 bond – one of two bonds that could default if defaulted on Monday – was trading at the troubled price of 18.560 US cents to the dollar, down from 20.083 cents at Friday’s close.

LIQUIDITY PRESSURE

Evergrande is struggling to raise capital through asset sales, and the government has asked President Hui Ka Yan to use his wealth to pay off the company’s debt. Read more

The company is just one of many developers deprived of liquidity due to regulatory restrictions on borrowing, causing overseas defaults, credit downgrades and sales of stocks and bonds. developers.

To stem the unrest, regulators since October have urged banks to ease lending for normal developers’ financing needs and allowed more real estate companies to sell domestic bonds. Read more

A traffic light is seen near the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 26, 2021. REUTERS / Aly Song

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To free up funds, Premier Li Keqiang said on Friday that China would reduce the reserve requirement ratio of banks “in due course”. Read more

Still, the government may need to significantly step up policy easing measures in the spring to avoid a sharp slowdown in the real estate sector as pressure on repayments intensifies, Japanese investment bank Nomura said in a report on Sunday. .

Quarterly dollar bond repayments will nearly double to $ 19.8 billion in the first quarter and $ 18.5 billion in the second.

Still, easing measures such as the ability to sell domestic bonds are unlikely to help Evergrande refinance as there would be no demand for its notes, CGS-CIMB Securities said on Monday.

Evergrande’s inability to sell projects – with almost zero sales in November – also makes short-term debt payments “highly unlikely,” the brokerage said.

CONTAGION

Small developer Sunshine 100 China Holdings Ltd (2608.HK) on Monday said it defaulted on a $ 170 million bond due Dec.5 “due to liquidity issues resulting from the negative impact of a number of factors, including the macroeconomic environment and the real estate sector “. Read more

The default will trigger cross-default clauses under certain other debt instruments, he said.

Last week, Kaisa Group Holdings Ltd (1638.HK) – China’s largest offshore debtor among developers after Evergrande – said bondholders had rejected an offer to exchange its offshore bonds at 6.5 % maturing on December 7, leaving it exposed to the risk of default.

The developer has started talks with some of the bondholders to extend the $ 400 million debt repayment deadline, sources told Reuters. Read more

Small rival China Aoyuan Property Group Ltd (3883.HK) last week also said creditors demanded repayment of $ 651.2 million due to a series of rating downgrades, and that it could not being able to pay due to lack of cash. Read more

Aoyuan Chairman Guo Zi Wen told executives at an internal meeting on Friday to have a “wartime mindset” to ensure the operation and delivery of the project and to fund the payback. a person with first-hand knowledge of the matter told Reuters.

These tasks will be priorities for the developer, who will leave the negotiation of the repayment of the bonds to professional institutions in Hong Kong, the person said, declining to be identified because the matter is private.

Aoyuan did not respond to a request for comment.

The developer’s share price fell nearly 8% on Monday. Kaisa lost 3.8% while Sunshine 100 plunged 14%.

($ 1 = 6.3724 yuan Chinese renminbi)

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Reporting by Clare Jim in Hong Kong; Additional reporting to Shuyan Wang in Beijing; Editing by Anne Marie Roantree and Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.


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