Serena Ng, Alexander Gladstone, Greg Zuckerman
Global investors who own certain China Evergrande U.S. dollar bonds hadn’t received an interest payment from the property giant by Thursday’s deadline, said people familiar with the matter, opening a new chapter in the cash-strapped firm’s financial struggles.
Evergrande was on the hook to make $83.5 million in coupon payments by Sept. 23 on dollar bonds with a face value of $2.03 billion. The company could make the payments belatedly and it has a 30-day grace period before bondholders can call a default.
A missed payment would set the stage for what could be the largest-ever dollar-bond default by a company in Asia. Evergrande (HKG:HK:3333) didn’t respond to a request for comment.
Thursday’s payment deadline became a focal point for global investors after Evergrande’s liquidity worsened dramatically over the summer, leading to construction halts at some of its unfinished apartment complexes and sharp sales declines.
On Wednesday, Evergrande’s flagship property business in mainland China said it had privately negotiated with onshore bondholders to settle a separate coupon payment on a yuan-denominated bond. The developer didn’t say if that payment, equivalent to about $35.9 million, would be made in cash or other assets. Evergrande’s beaten-down shares fell 11.6% in Friday trading in Hong Kong, and are down more than 84% this year.
Chinese authorities have asked local governments to prepare for the potential economic and social repercussions that could result from Evergrande’s downfall, The Wall Street Journal reported earlier on Thursday. That indicates Beijing is reluctant to bail out the developer, but wants to avoid a disorderly unraveling that could create social instability or serious problems for ordinary people who could be affected by the company’s failure.
Shenzhen-headquartered Evergrande, the world’s most indebted real-estate developer, is China’s largest issuer of junk-rated debt, with around $19 billion of publicly traded dollar bonds outstanding. Prices of some of those bonds had earlier plunged to around 25 cents on the dollar, reflecting investors’ extreme pessimism about Evergrande’s ability to repay its debts.
Evergrande’s troubles have captivated market participants all over the world because of the developer’s outsize position in Asia’s credit markets and China’s overheated housing market.
Evergrande was recently China’s largest developer by contracted sales, and reported the equivalent of $111.9 billion in such transactions in 2020. It has built residential complexes in every Chinese province.