Chinese Real Estate Giant Evergrande Narrowly Avoids Another Default

By Ashok Ramprasad | November 14, 2021
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China’s Evergrande has paid off interest on bonds that were due in October.
China’s Evergrande has paid off interest on bonds that were due in October. (Image: Engin_Akyurt via Pixabay)

China Evergrande Group, the world’s most indebted property developer, has managed to avert yet another default after making payments to several bondholders. This is the third time in the past month that the cash-strapped property developer has avoided default. The company has been hobbling from one due date to another. It’s been struggling with more than $300 billion in liabilities; $19 billion are offshore bonds. 

According to Bloomberg, a spokesperson for Clearstream, an international clearing firm, revealed that they had received interest payments that were outstanding on three-dollar bonds issued by Evergrande. 

After the company missed the cut-off dates for interest payments last month, investors were on the edge. They waited to see if the developer would make the payment of $148.1 million on Nov. 10, which marked the end of the 30-day grace period. The bonds include a 9.5 percent security due in 2022, a 10 percent note due in 2023, and a 10.5 percent bond due in 2024. 

Evergrande has missed several interest payments on its offshore debt. The company has the potential to destabilize the Chinese economy if it goes into default. Concerned about the company’s massive debt pile, Chinese authorities are even pushing Evergrande founder Hui Ka Yan to settle some of the debts with his own funds.

“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,” a source with knowledge of the matter told Reuters about the Evergrande debt crisis. The company now faces coupon payments due on Dec. 28 worth more than $255 million.

In order to raise cash and meet payment deadlines, Evergrande has been trying to sell its assets and offload properties. But these attempts have met with little success. Plans to sell a $2.6 billion stake of Evergrande Property Services to Hopson Development Holdings fell through. The sale of Evergrande’s other properties failed due to buyers’ apprehension about the developer’s financial situation.

However, it did manage to raise $144 million by selling shares in the internet company, HengTen Networks Group. According to reports from Chinese media, Evergrande’s chairman also mortgaged his own property, The Peak in Hong Kong. While the amount received from the city’s most expensive address is unknown, it is estimated to be around HK$800 million (US$ 102.67 million).

Investors are also turning their attention to other developers who are cash-strapped and have a series of offshore payments that are expected to be made soon. The country’s $5 trillion property sector continues to remain in trouble as many real estate firms are being weighed down by debt.

In recent weeks, Chinese regulators have sought to allay fears among investors by stating that the risks are manageable. To prevent a rapid decline of the property sector, regulators and government think tanks have held consultations with developers. The market is expected to see an easing in housing policies and credit.

Given the size of communist China’s economy and its vast trade ties with the rest of the world, the U.S. Federal Reserve recently warned that the turmoil in China’s real estate industry could spill over to the United States as well.