Evergrande dodges default again; property sector debt concerns linger

By Anshuman Daga, Clare Jim and Andrew Galbraith

SINGAPORE/HONG KONG (Reuters) – Cash-strapped developer China Evergrande Group once again averted a destabilising default with a last minute bond payment but the reprieve did little to alleviate strains in the country’s wider property sector.

Customers of international clearing firm Clearstream received overdue interest payments on three dollar bonds issued by Evergrande, a Clearstream spokesperson said on Thursday.

Evergrande, the world’s most indebted developer, has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are dollar bonds.

The latest payments were made at the end of a 30-day grace period that ended Wednesday, and were the third time in the past month the company has paid up perilously close to a deadline. The bonds had a total of more than $148 million due.

A failure to pay would have resulted in a formal default by the company and triggered cross-default provisions for other Evergrande dollar bonds, exacerbating a debt crisis looming over the world’s second-largest economy.

Although the developer managed to sidestep imminent disaster, woes in the country’s $5 trillion property sector showed no signs of abating with a wall of debt coming due.

“The near-term fix seems to be happening but there’s a long way to go before this issue gets sorted out. These are early days,” said a source with knowledge of the matter, referring to Evergrande and declining to be named without authorisation to talk to the media.

Evergrande did not respond to Reuters request for comment.

Bankers and analysts told Reuters that Beijing would stand firm on policies to curb excess borrowing by property developers even as it makes financing tweaks amid an industry liquidity crunch.

Evergrande has coupon payments totalling more than $255 million due on Dec. 28. It has come under pressure from its other creditors at home and a stifling funding squeeze has cast a shadow over hundreds of its residential projects.

Investor focus is now also shifting to other cash-strapped developers which have a string of offshore payments coming due in the short term, including Kaisa Group.

Kaisa has the most offshore debt of any Chinese developer after Evergrande and pleaded for help from creditors this week. It has coupon payments totalling over $59 million due on Thursday and Friday, with 30-day grace periods for both.

It was not immediately known if Kaisa, which became China’s first property company to default on an overseas bond in 2015, has made payment for the tranche due on Thursday. It has already missed payments on some wealth management products at home.

The developer did not immediately respond to Reuters request for comment.

HARD LANDING

While the U.S. Federal Reserve this week warned China’s troubled property sector could pose global risks, there were no clear indications Beijing would step in with a broader, national plan to tackle the issue.

Chinese regulators have in recent weeks, however, sought to reassure investors and homebuyers, saying risks were controllable and excessive credit tightening by banks was being corrected.

Regulators and government think tanks have also held meetings with developers in the past few weeks, and the market is expecting some easing in credit and housing policies to prevent a hard landing of the sector.

Those hopes and Evergrande’s payment sparked a relief rally across Chinese property shares, with an index of real estate A-shares surging 9%, and Hong Kong’s Hang Seng Mainland Properties Index closing up 5.6%.

Shares of Evergrande closed up 6.8% to a two-week high.

Chinese developers’ bond prices, which have been hit hard in recent weeks, soared even higher.

Duration Finance data showed the price on China Aoyuan Group’s 5.88% March 2027 bond jumping more 30% on the day, although it continued to trade at deeply distressed levels of around 36 cents in the dollar.

Evergrande’s April 2022 notes jumped 4% from midnight to 28.886 cents on the dollar in the afternoon, yielding 620%, though still off from the 30.289 earlier this week, according to Duration Finance data.

The developer’s bond due March 2024 traded at 24.839, up from 23.692 on Wednesday, the data showed.

Bonds issued by Times China Holdings Xinyuan Real Estate, Yuzhou Group Holdings and Sunac China Holdings also rose more than 10%.

An index of dollar-denominated Asian high-yield bonds rose more than 1%, while Chinese high-yield corporate dollar spreads narrowed from record highs.

Developers including Evergrande and Kaisa have also been looking to sell some of their business assets in China and elsewhere to raise cash amid rapidly growing repayment obligations.

British electric motor maker Saietta said on Thursday that it is acquiring electric powertrain company e-Traction from Evergrande’s automotive unit in a deal worth up to 2 million euros ($2.31 million).

(Editing by Sumeet Chatterjee, Lincoln Feast and Carmel Crimmins)

By Anshuman Daga, Clare Jim and Andrew Galbraith

SINGAPORE/HONG KONG (Reuters) – Cash-strapped developer China Evergrande Group once again averted a destabilising default with a last minute bond payment but the reprieve did little to alleviate strains in the country’s wider property sector.

Customers of international clearing firm Clearstream received overdue interest payments on three dollar bonds issued by Evergrande, a Clearstream spokesperson said on Thursday.

Evergrande, the world’s most indebted developer, has been stumbling from deadline to deadline in recent weeks as it grapples with more than $300 billion in liabilities, $19 billion of which are dollar bonds.

The latest payments were made at the end of a 30-day grace period that ended Wednesday, and were the third time in the past month the company has paid up perilously close to a deadline. The bonds had a total of more than $148 million due.

A failure to pay would have resulted in a formal default by the company and triggered cross-default provisions for other Evergrande dollar bonds, exacerbating a debt crisis looming over the world’s second-largest economy.

Although the developer managed to sidestep imminent disaster, woes in the country’s $5 trillion property sector showed no signs of abating with a wall of debt coming due.

“The near-term fix seems to be happening but there’s a long way to go before this issue gets sorted out. These are early days,” said a source with knowledge of the matter, referring to Evergrande and declining to be named without authorisation to talk to the media.

Evergrande did not respond to Reuters request for comment.

Bankers and analysts told Reuters that Beijing would stand firm on policies to curb excess borrowing by property developers even as it makes financing tweaks amid an industry liquidity crunch.

Evergrande has coupon payments totalling more than $255 million due on Dec. 28. It has come under pressure from its other creditors at home and a stifling funding squeeze has cast a shadow over hundreds of its residential projects.

Investor focus is now also shifting to other cash-strapped developers which have a string of offshore payments coming due in the short term, including Kaisa Group.

Kaisa has the most offshore debt of any Chinese developer after Evergrande and pleaded for help from creditors this week. It has coupon payments totalling over $59 million due on Thursday and Friday, with 30-day grace periods for both.

It was not immediately known if Kaisa, which became China’s first property company to default on an overseas bond in 2015, has made payment for the tranche due on Thursday. It has already missed payments on some wealth management products at home.

The developer did not immediately respond to Reuters request for comment.

HARD LANDING

While the U.S. Federal Reserve this week warned China’s troubled property sector could pose global risks, there were no clear indications Beijing would step in with a broader, national plan to tackle the issue.

Chinese regulators have in recent weeks, however, sought to reassure investors and homebuyers, saying risks were controllable and excessive credit tightening by banks was being corrected.

Regulators and government think tanks have also held meetings with developers in the past few weeks, and the market is expecting some easing in credit and housing policies to prevent a hard landing of the sector.

Those hopes and Evergrande’s payment sparked a relief rally across Chinese property shares, with an index of real estate A-shares surging 9%, and Hong Kong’s Hang Seng Mainland Properties Index closing up 5.6%.

Shares of Evergrande closed up 6.8% to a two-week high.

Chinese developers’ bond prices, which have been hit hard in recent weeks, soared even higher.

Duration Finance data showed the price on China Aoyuan Group’s 5.88% March 2027 bond jumping more 30% on the day, although it continued to trade at deeply distressed levels of around 36 cents in the dollar.

Evergrande’s April 2022 notes jumped 4% from midnight to 28.886 cents on the dollar in the afternoon, yielding 620%, though still off from the 30.289 earlier this week, according to Duration Finance data.

The developer’s bond due March 2024 traded at 24.839, up from 23.692 on Wednesday, the data showed.

Bonds issued by Times China Holdings Xinyuan Real Estate, Yuzhou Group Holdings and Sunac China Holdings also rose more than 10%.

An index of dollar-denominated Asian high-yield bonds rose more than 1%, while Chinese high-yield corporate dollar spreads narrowed from record highs.

Developers including Evergrande and Kaisa have also been looking to sell some of their business assets in China and elsewhere to raise cash amid rapidly growing repayment obligations.

British electric motor maker Saietta said on Thursday that it is acquiring electric powertrain company e-Traction from Evergrande’s automotive unit in a deal worth up to 2 million euros ($2.31 million).

(Editing by Sumeet Chatterjee, Lincoln Feast and Carmel Crimmins)