China's Evergrande Issues 'Owl' Default Warning... Authorities Move to Contain Market Impact

[Image source=Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The liquidity crisis-hit Chinese real estate developer Evergrande's official default declaration appears imminent. Authorities have summoned Evergrande's chairman to prevent market turmoil.

On the 3rd (local time), according to Bloomberg and others, Evergrande announced through a Hong Kong Stock Exchange disclosure that it is likely to have difficulty repaying a $260 million (approximately 307.5 billion KRW) debt due that night.

Evergrande added that failure to repay this debt could lead to early repayment demands on other dollar bonds.

If Evergrande fails to properly repay the principal and interest on its dollar bonds, it would trigger a chain default on the entire $19.236 billion (approximately 22.7 trillion KRW) worth of dollar bonds.

As Evergrande's liquidity crisis became prominent, the Guangdong provincial government summoned Evergrande Chairman Xu Jiayin for a 'Wetan' (約談) that night. Wetan is a form of public reprimand by government agencies where they summon supervised companies or institutions to criticize and demand rectification, a kind of 'disciplinary action.'

The People's Bank of China, the China Securities Regulatory Commission, and the China Banking and Insurance Regulatory Commission also issued statements late at night to calm market anxiety.

The People's Bank of China stated, "The main cause of Evergrande's crisis stems from its failure to manage itself properly and its blind pursuit of expansion," adding, "In the international dollar bond market, investors are relatively mature, and clear legal regulations and procedures exist to handle related issues," and "Short-term risks of real estate companies will not affect the normal lending functions of the market in the mid to long term."

The China Banking and Insurance Regulatory Commission also emphasized that financial sector debt accounts for about one-third of Evergrande's total debt and is structurally dispersed, so it will not negatively impact the normal operation of the financial sector.

The China Securities Regulatory Commission issued a separate statement, saying that the mainland Chinese stock market remains stable and the default rate in the bond market is maintained at a relatively low level of around 1%, and that the impact of Evergrande's crisis on the capital market can be sufficiently controlled.