China Evergrande makes payment for Dodge Default, media say

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HONG KONG – China Evergrande, the struggling real estate giant on the brink of collapse, appears to have gained a little more time.

The world’s most indebted real estate developer on Friday paid bondholders $ 83.5 million in interest, according to the Securities Times, an official gazette. The outlet, which is supported by the People’s Daily, the official newspaper of the Communist Party, did not provide further details.

Payment came with just one day remaining over a 30 day grace period to avoid default. The company took hold of global financial markets a month ago when it skipped a payment to foreign bondholders, suggesting it could leave global investors with billions of dollars in losses and cause losses. ripples in the Chinese real estate market, a key part of the country’s economic growth engine. .

Evergrande did not respond to a request for comment. Lawyers representing the bondholders declined to comment.

Burdened with more than $ 300 billion in debt, the real estate developer has attempted to sell off parts of his vast empire in order to raise enough cash to pay off the creditors circling around.

This week, one of those deals – widely seen as a lifeline of last resort – collapsed. The deal would have enabled Evergrande to raise some $ 2.6 billion in exchange for a stake in its real estate services company, providing much-needed liquidity to begin dealing with a long line of creditors seeking their money back.

After reporting the failure of the deal, Evergrande warned that “given the difficulties, challenges and uncertainties” he faced, he could not guarantee that he would “be able to meet his financial obligations”.

Evergrande shares rose more than 4% on the Hong Kong stock market on Friday, a day after falling more than 12% as the market digested news of a failed bid. Some of its bonds were trading at less than 25 cents to the dollar.

Until Friday’s Securities Times report, many market watchers were betting Evergrande would miss the bond’s payment, effectively triggering a default.

The Evergrande financial crisis is testing the resolve of Chinese officials who were quick to step in to save struggling giants like Evergrande. They are committed to cleaning up China Inc.’s mountain of debt and ending the real estate industry’s excessive borrowing habits.

“Anything that looks like ‘saving Evergrande’ risks creating moral hazard that runs counter to the anti-leverage campaign,” said Arthur Kroeber, head of research at economic research firm Gavekal Dragonomics.

The country’s corporate sector has $ 27 trillion in debt, more than any other country in the world, according to the Institute of International Finance. By comparison, this is the total amount of debt held by the United States government.

Yet if authorities let Evergrande fail, they could harm some of the more than one million Chinese buyers who have bought apartments from the company and are waiting for them to be built and delivered. A collapse could also hit construction workers and contractors waiting to be paid.

Beyond the company itself, authorities risk cooling the Chinese real estate market and beyond, shaking household confidence to buy everything from appliances to cars.

While Evergrande has struggled to sell its properties, many homebuyers across the country have been dissuaded from buying a property. Evergrande reported this week that its own sales of new apartments fell 97% in September and part of October from a year earlier, a period which is typically the peak selling season for Chinese property developers.

Across China, new home prices fell for the first time in more than six years in September from the previous month, according to data from China’s National Bureau of Statistics. Evergrande’s financial woes have already spread to other developers, three of whom have defaulted on their own debt in recent days.

While Evergrande appeared to appease some investors and narrowly avoid a default on a Friday bond payment, it will need to find more money to meet deadlines for other debt payments in the days and weeks to come.

“China Evergrande needs access to finance for its business to function,” said Daniel Anderson, a Hong Kong-based partner at Ropes & Gray law firm. If the business cannot find the money to make future payments, it is always at risk of default.

“A default would give holders of these defaulting bonds the right to accelerate,” said Mr. Anderson, “which could trigger defaults on other bonds and indebtedness.”


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