China Evergrande Centre sign seen on the front of their building.
Katherine Cheng | SOPA Images | LightRocket | Getty Images
Cash-strapped China Evergrande Group has made payments for an offshore bond coupon ahead of the expiry of a grace period on Friday, two people with direct knowledge of the matter said, meeting its second U.S. dollar repayment obligation this month
Evergrande, once China’s top-selling developer, is reeling under more than $300 billion in liabilities, fuelling worries about the impact of its fate on the world’s second-largest economy and global markets.
The property developer, which averted a default last week by securing $83.5 million for the last-minute payment of interest on a bond, needed to make $47.5 million in coupon payments to bondholders by Friday.
Evergrande did not respond to Reuters request for comment. The people declined to be identified due to the sensitivity of the matter.
Shares of Evergrande rose more than 1% in early trading on Friday, versus a 0.4% decline in the Hang Seng Index.
Evergrande missed coupon payments totaling nearly $280 million on its dollar bonds on Sept. 23, Sept. 29 and Oct. 11, beginning 30-day grace periods for each.
It still has nearly $338 million in other offshore coupon payments coming due in November and December.
The New York Times earlier reported that the developer made an interest payment, citing a person speaking on condition of anonymity.
“Evergrande has tried its best to solve liquidity problems, but it’s a little bit difficult to gather enough capital to pay all the debt,” said Cliff Zhao, chief strategist at China Construction Bank International in Hong Kong.
“I think there (will) be some negotiations between Evergrande and its lenders, so some sort of haircut is still possible. The market still needs some time to digest and to price this in.”
Evergrande’s woes have snowballed for months and its dwindling resources set against its vast liabilities have wiped out 80% of its value, leading some analysts to consider default at some point inevitable.
Even as Evergrande secures funds to make payments, other Chinese developers whose fortunes have been hit by market concerns over Evergrande’s debt crisis have slid into formal default.
Fantasia Holdings Group, Sinic Holdings, China Properties Group and Modern Land have all defaulted on dollar debt obligations this month.
Other developers with significant dollar debt have proposed extending offshore bond maturities or undertaking debt restructuring in a meeting with regulators, sources have said.
In a meeting with developers this week, China’s National Development and Reform Commission and the State Administration for Foreign Exchange told developers facing large offshore debt maturities to evaluate repayment risk and report difficulties.
Concerns over the systemic impact of a default by Evergrande have widened spreads on Chinese high-yield dollar debt to record levels as investors demand higher risk premiums.
Such concern has also kept the cost of insuring against default on China’s sovereign debt elevated. That cost earlier this month touched its highest level since the height of the pandemic in 2020.
Founded in Guangzhou in 1996, Evergrande epitomized 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.
Any prospect of Evergrande’s demise raises questions over the fate of more than 1,300 real estate projects it has ongoing in some 280 cities.
Bank exposure to developers is also extensive.
A leaked 2020 document, branded fake by Evergrande but taken seriously by analysts, showed the developer’s liabilities extended to more than 128 banks and over 121 non-banking institutions.