The Chinese property developer Evergrande has reportedly made an interest payment for an offshore bond before a grace period expired on Friday, narrowly averting a catastrophic default for the second time in a week.
Evergrande, once China’s top-selling developer, is reeling under more than $300bn in liabilities, fuelling worries about the impact of its fate on the world’s second-largest economy as well as on global markets. It staved off a default last week by securing $83.5m for the last-minute payment of interest on a bond, and needed to make $47.5m in coupon payments to bondholders by Friday.
On Friday, Reuters, Bloomberg and the New York Times said sources with direct knowledge of the matter had confirmed the payment. Evergrande did not respond to Reuters’ request for comment.
A failure to pay by the Friday deadline would have triggered cross-defaults on all of the company’s $19bn worth of bonds in international capital markets, in what would have been the world’s second-largest emerging market corporate debt default.
Reuters was not able to determine the source of the funds used to make the interest payments. Bloomberg News reported earlier this week that Chinese authorities had urged Evergrande’s founder, Hui Ka Yan, to pay the developer’s debts out of his personal wealth.
Shares of Evergrande gave up early gains to fall about 0.8% by late morning on Friday, versus a 0.3% decline in the Hang Seng Index. The Hang Seng Mainland Properties Index fell about 0.9%, while an index of developers’ mainland A-shares dropped 3.6%.
Prices of the developer’s bonds jumped higher on Friday, with its 11.5% January 2023 bond surging more than 9%, and its 12% January 2024 bond up nearly 8% on the day, data from Duration Finance showed.
That still left them trading at discounts of more than 75% from their face value, with the 2023 bond yielding nearly 190%.
One bondholder said he maintained a negative outlook for the developer despite it making the coupon payment.
“I only think they are buying time at this point,” the bondholder said.
Evergrande missed coupon payments totalling nearly $280m on its dollar bonds on 23 and 29 September and 11 October, beginning 30-day grace periods for each.
It still has nearly $338m 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 Co Ltd, Sinic Holdings (Group) Co Ltd, China Properties Group Ltd and Modern Land (China) Co Ltd 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.