[Asia Economy Reporter Park Byung-hee] Chinese financial authorities have issued a series of guidelines to Evergrande Group, which is facing bankruptcy, Bloomberg reported on the 23rd (local time).
According to sources, the guidelines given to Evergrande Group by the authorities include completing the construction of houses under development, repaying funds to individual investors, and avoiding default on dollar bonds in the short term. Additionally, the authorities recently met with Evergrande Group officials and emphasized the need for active communication with creditors. However, the sources said the authorities did not provide specific measures to Evergrande Group to avoid default.
According to the report, the financial authorities appear to have demanded self-help efforts from Evergrande Group rather than providing immediate support. Bloomberg stated that there is no sign that the authorities have supported Evergrande Group to help with bond repayments. The authorities are reportedly trying to find out who holds Evergrande Group’s bonds, according to sources.
Earlier, Dow Jones also cited sources saying that the Chinese government has no intention of bailing out Evergrande Group. The sources added that Chinese authorities instructed local governments and state-owned enterprises to monitor the situation until the last moment and intervene only if the Evergrande crisis escalates uncontrollably.
Evergrande Group is required to pay $83.5 million in dollar bond interest and $47.5 million in yuan bond interest on the day. Earlier, on the 22nd, Evergrande Group issued a statement saying it had resolved the issue of paying $47.5 million in yuan bond interest. Regarding this, analysts speculate that Evergrande Group appears to have reached an agreement with yuan bondholders to postpone interest payments, Bloomberg reported.
On the other hand, Evergrande Group did not mention the dollar bond interest. However, it is known that there is a 30-day grace period for dollar bond interest.
Two dollar bond investors who were supposed to receive interest on the day told Bloomberg that as of 5 p.m. Hong Kong time, they had not yet received interest from Evergrande Group.
Even if Evergrande Group overcomes the crisis on the day, it will have to pay bond interest continuously in the future. Interest payments are due on the 30th of this month, $166.9 million next month, $82.5 million in November, and $255.2 million in December.
If government support remains uncertain, there are forecasts that Evergrande Group will ultimately fail to avoid default. In the absence of clear government support, Evergrande Group must sell assets or sell the houses currently under construction to overcome the immediate liquidity crisis. However, Evergrande Group has stated that asset sales, such as the sale of its Hong Kong headquarters, are facing difficulties. House sales are also unfavorable. Consumers are reluctant to purchase houses as they are uncertain whether Evergrande Group can complete the construction. Chinese homebuyers pay deposits in advance and must wait several years until the houses are completed. Bloomberg reported that about 1.5 million homebuyers have purchased Evergrande Group houses but are still waiting for completion.
Evergrande Group’s debt exceeds $300 billion. Bloomberg reported that Evergrande Group has issued the largest amount of junk-rated bonds in Asia. It pointed out that Evergrande Group’s default would raise interest rates on other junk-rated corporate bonds in China and damage the soundness of small banks.
Evergrande Group’s stock price rebounded on the Hong Kong stock market that day, soaring 17.6% compared to the previous day. The annual decline rate for this year narrowed to 82%.
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