Default Concerns Spread... Increased Likelihood of Restructuring Amid Authorities' Intervention
[Asia Economy Reporter Kim Suhwan] Evergrande (恒大·Ebeogeulande), China’s second-largest real estate developer burdened with debt exceeding 350 trillion won and facing a default crisis, reportedly failed to properly pay the interest on its dollar-denominated bonds scheduled for payment on the 29th, following the missed payment on the 23rd.
According to major foreign media on the 30th, holders of Evergrande’s dollar bonds maturing in 2024, with interest payments of $47.5 million (approximately 56.3 billion won) due on the 29th, did not receive any contact from Evergrande.
Evergrande had not issued an official statement by the morning of the 30th. The market expects that Evergrande will ultimately fail to pay the interest to investors properly.
Previously, Evergrande reportedly failed to pay $83.5 million (approximately 99 billion won) in interest on its dollar bonds to bondholders on the 23rd.
However, there is a 30-day grace period, so if Evergrande pays the bond interest during this period, it can avoid a default situation.
On the 29th, Evergrande announced through a Hong Kong Stock Exchange disclosure that it had signed a contract to sell a 19.93% stake in Shengjing Bank for 9.993 billion yuan (approximately 1.83 trillion won).
The market expected Evergrande’s liquidity crisis to ease, but since all the funds secured from the sale of the Shengjing Bank stake will be used to repay loans Evergrande received from Shengjing Bank, it ultimately did not significantly help resolve the bond interest repayment issue.
Although Evergrande’s default crisis is still ongoing, some analysts suggest that the possibility of a financial crisis caused by the Evergrande situation has decreased as Chinese authorities signal their intention to restructure Evergrande through the state-owned enterprise’s acquisition of the Shengjing Bank stake.
Yihong Leng, manager of the CraneShares Asia Pacific Bond ETF, said, “The most likely outcome is debt restructuring under government support,” adding, “While debt restructuring will be a significant shock to creditors, the government and Evergrande are expected to focus on protecting customers and partner companies.”
The market anticipates that Evergrande will try to overcome its immediate liquidity crisis by disposing of non-core assets such as Evergrande Auto, following the sale of the Shengjing Bank stake.
The Chinese government has not yet shown a clear stance on whether to actively intervene in the Evergrande situation or let it go bankrupt. However, according to foreign media, authorities are likely to intervene to some extent to minimize socio-economic repercussions.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
