China Evergrande Offshore Investors Face ‘Large Loss’ After Second Payment Failure

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SHANGHAI / BEIJING (Reuters) – China Evergrande group failed to pay bond interest owed on Wednesday, two bondholders said, its second unpaid offshore debt payment in a week, despite the cash-strapped company is struggling to meet its obligations in its internal market.

An exterior view of the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 29, 2021. REUTERS / Aly Song

The company, cornered by $ 305 billion in debt, was due to make a $ 47.5 million bond interest payment on its March 2024 9.5% dollar bond interest payment on Wednesday, after missing $ 83.5 million. of dollars in coupon payments last Thursday.

With liabilities equal to 2% of Chinese GDP, Evergrande has raised fears that its woes will spill over into the financial system and reverberate around the world, although concerns subsided somewhat after the central bank committed. to protect the interests of home buyers.

The developer’s silence on its offshore payment obligations, however, has led global investors to question whether they will have to take significant losses at the end of the 30-day grace periods for the coupons that were due on September 23 and 29.

Some Evergrande offshore bondholders had not received any interest payments or communications by the end of Wednesday New York time, said people familiar with the matter, who declined to be identified due to the sensitivity of the problem.

A spokesperson for Evergrande did not immediately comment. Reuters has not been able to determine whether Evergrande has told bondholders what it plans to do regarding the coupon payment due Wednesday.

The two missed offshore payments come as the company, which has nearly $ 20 billion in offshore debt, faces deadlines for dollar bond coupon payments totaling $ 162.38 million next month.

Once the best-selling developer in China, Evergrande is now set to be one of the largest restructuring ever in the country. He has prioritized his onshore responsibilities amid concerns about his issues sparking social unrest.

“I don’t see a lot of willingness to give a fairer result to offshore bondholders rather than onshore banks, let alone homebuyers and people who have lent onshore through personal loan structures,” said Alexander Aitken, partner at Herbert Smith Freehills. in Hong Kong.

“Of course, legally there is also structural subordination abroad, which means that the lenders of Evergrande’s onshore subsidiaries are paid before the lenders of the parent company or any offshore debt issuer.”

RESUMPTION OF CONSTRUCTION

Beijing is unlikely to intervene directly to resolve the Evergrande crisis in the form of a bailout, but analysts say it is wary of a disorderly collapse that could fuel unrest among investors, suppliers and buyers local.

In recent days, authorities have urged public companies and state-backed property developers to buy certain Evergrande assets in order to reduce those risks.

Some instant messaging groups used here by people who owed Evergrande money to stage protests and discuss claims have been blocked on Tencent Holdings’ WeChat platform, members of the group said on Wednesday.

Evergrande said on Wednesday it would sell a 9.99 billion yuan ($ 1.5 billion) stake it owns in Shengjing Bank Co Ltd to a state-owned asset management company.

The bank, one of Evergrande’s main lenders, demanded that all net proceeds from the sale be used to settle the developer’s debts with Shengjing, who had 7 billion yuan in loans to Evergrande in the first half of the year. last year.

Separately, Evergrande’s Pearl River Delta company said in a WeChat post on Tuesday that nearly 20 developments in the region have resumed construction. The post showed construction photos from various sites and said the resumption of work had accelerated since Evergrande pledged earlier this month to deliver the homes to buyers.

Its main onshore unit Hengda Real Estate Group announced the resolution of an onshore bond coupon payment on September 23 through “private negotiations”.

Evergrande shares opened sharply higher on Thursday, rising to 5.21% before reversing price to collapse to 7.17%. The title lost 5% in the afternoon trading.

“Regardless of how the debt is restructured, Evergrande shareholders and investors in USD-denominated offshore corporate bonds will suffer significant losses,” said Jing Sima, chief China strategist at BCA Research in a note.

($ 1 = 6.4641 Chinese yuan)

Reporting by Anne Marie Roantree, Clare Jim, Alun John and Donny Kwok in Hong Kong, Xiao Han in Beijing, Andrew Galbraith in Shanghai; Written by Sumeet Chatterjee; Editing by Christopher Cushing, Gerry Doyle and Kim Coghill

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