China Evergrande Group (HKG:3333) is on the brink of formal default as the 30-day grace period has gone unpaid. The real estate giant was expected to make some coupon payments to offshore bondholders, and now it is set to become the biggest defaulter in China.
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Evergrande Crisis
As informed by Reuters, should Evergrande not make interest payments of $82.5 million due last month it will face cross-default on the company’s international bonds worth $19 billion. The developer said Monday it had created a risk-management committee to help mitigate and eliminate future risks.
On Friday, the company said: “In light of the current liquidity status ... there is no guarantee that the group will have sufficient funds to continue to perform its financial obligations.”
Kenny Ng, strategist at Everbright Sun Hung Kai Securities, said the market was aware of the possibility of Evergrande failing to pay, as “at the same time, investors are watching the development of Evergrande, including whether it is heading for debt restructuring or its creditor repayment plan.”
Chinese regulators have continually asserted that the effects of Evergrande's crisis can be controlled and have moved to increase liquidity in the banking sector. This is paired up with the company’s plans to restructure its overseas debt to help reassure global investors.
Avoiding Default
Evergrande has roughly $300 billion in total liabilities and has epitomized the Chinese property crisis, which has sent several developers out of business and underlines the country’s “ghost town” phenomenon.
The previous grace period finished on October 29, Friday, and the company managed to make an interest payment for an offshore bond before the deadline. CNN reported back then that Evergrande had averted default by seizing $83.5 million for the last-minute interest payment of a bond worth $47.5 million and expiring in March 2024.
While the origins of the payment resources were not disclosed, the People’s Bank of China and other regulators had urged founder Hui Ka Yan to draw money from his personal wealth.
CNN reports that Evergrande stock dived a record 20% at 1.81 Hong Kong dollars on default fears, as shares have lost 87% of their value since the beginning of 2021.
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