SINGAPORE (Reuters) – China Evergrande slipped into some kind of limbo on Friday as time passed on an interest payment deadline that global markets are watching for signs of default, leaving investors spellbound of the beleaguered real estate giant.
The company owes $ 305 billion, is cash-strapped, and markets fear a collapse poses systemic risks to China’s financial system and spillovers around the world.
The Chinese central bank again injected liquidity into the banking system on Friday, seen as a signal of support for the markets. But authorities have remained silent on Evergrande’s predicament, and Chinese state media have offered no clues about a bailout.
Evergrande appointed financial advisers and warned of a default last week, and global markets fell sharply on Monday amid contagion fears, although they have since stabilized.
In his offices, angry small investors https://www.reuters.com/world/china/chinas-mom-and-pop-investors-builders-homebuyers-caught-evergrande-debt-crisis-2021-09-23 have protested to try to recover the life savings buried in its buildings and its wealth management products.
Evergrande has vowed to put those investors first and resolved a coupon payment on a domestic bond this week, giving markets a silver lining. But he said nothing about an $ 83.5 million offshore interest payment that was due Thursday or a $ 47.5 million payment due next week.
He enters a 30-day grace period if he doesn’t pay Thursday’s dues and would be in default if that window went by without settling the debt. Bondholders are starting to think it might be a month or so before things get any clearer.
As Friday’s trade began in Hong Kong, there had been no announcement regarding a payment. A spokesperson for the company did not respond to requests for comment.
“Current market prices believe that investors in Evergrande dollar bonds should recover very little,” said Jennifer James, portfolio manager and chief emerging markets analyst at Janus Henderson Investors.
“The most likely outcome is that the company will engage with creditors to reach a restructuring agreement,” she said.
“The way China handles Evergrande, and others, could have consequences. If mismanaged, the loss of confidence could have contagion effects in other financial markets.”
Global markets have started to recover from a sell off, trading on the basis that Evergrande’s problems can be contained. [MKTS/GLOB]
Only some $ 20 billion of Evergrande’s debt is owed abroad. Still, the risks inside are considerable as a collapse could crush the real estate sector which comprises a quarter of the Chinese economy and constitutes a large store of wealth.
“Home sales and investment could inevitably slow further – this would reduce GDP growth by almost a percentage point,” Societe Generale analysts said in a note.
“The longer decision-makers wait to act, the greater the risk of a hard landing.”
Yet there has so far been little sign of official intervention. The People’s Bank of China’s 270 billion yuan ($ 42 billion) cash injection this week is the biggest weekly sum since January and has helped put a floor under stocks.
Bloomberg Law also reported that regulators have asked Evergrande to avoid a short-term default, citing unnamed people familiar with the matter.
However, the Wall Street Journal said, citing unnamed officials, that authorities have asked local governments to prepare for the fall of Evergrande.
“Given the deliberate pace of Chinese policymaking, the authorities may well choose to buy time,” said Wei-Liang Chang, macro-strategist at DBS Bank in Singapore.
He said they could extend the cash aid during the grace period on Evergrande’s coupon payments, given that no dollar bond maturities are looming until March 2022.
Evergrande shares returned Thursday gains on Friday and fell 3%, while stock in its EV unit fell 18% to a four-year low. Its dollar bonds with looming payments last due were trading at around 30 cents on the dollar.
($ 1 = 6.4589 Chinese renminbi yuan)
(Reporting by Tom Westbrook. Additional reporting by Clare Jim in Hong Kong and Andrew Galbraith in Shanghai; Editing by Stephen Coates)