China Evergrande Makes Payment to Dodge Default, Media Says
The troubled real estate giant faced the threat of default if it didn’t meet its obligations to foreign bondholders by Saturday.,
China Evergrande makes a payment before a default deadline, state media says.
HONG KONG — China Evergrande, the troubled property giant that is teetering on the edge of collapse, appears to have bought itself a little more time.
On Friday, the world’s most indebted property developer made an $83.5 million interest payment to bondholders, according to Securities Times, an official newspaper. The outlet, which is backed by People’s Daily, the Communist Party’s official newspaper, didn’t offer further details.
The payment came with just one day left on a 30-day grace period to avoid a default. The company gripped global financial markets a month ago when it skipped a payment to foreign bondholders, raising the prospect that it could leave global investors with billions of dollars in losses and cause ripples within China’s property market, a key component of the country’s economic growth engine.
Evergrande did not respond to a request for comment. Lawyers representing the bondholders declined to comment.
Weighed down by more than $300 billion of debt, the property developer has been trying to sell off parts of its vast empire in order to raise enough cash to pay off creditors who are circling.
This week, one of those deals — largely seen as a last-ditch lifeline — fell through. The deal would have allowed Evergrande to raise some $2.6 billion in exchange for a stake in its property services company, providing much needed cash to begin dealing with a long line of creditors looking to get their money back.
After reporting that the deal had failed, Evergrande warned that “in view of the difficulties, challenges and uncertainties,” it faced, it could not guarantee it would “be able to meet its financial obligations.”
Evergrande shares were up more than 4 percent on the Hong Kong stock market on Friday, one day after they plummeted by more than 12 percent as the market digested the news of a failed bid. Some of its bonds traded below 25 cents on the dollar.
Until the report from Securities Times on Friday, many market watchers were betting that Evergrande would miss the bond payment, effectively triggering a default.
Evergrande’s financial crisis is testing the resolve of Chinese officials who were once quick to step in to save struggling giants like Evergrande. They have pledged to clean up China Inc.’s mountain of debt and end the property sector’s binge-borrowing habits.
“Anything that smacks of ‘saving Evergrande’ risks creating moral hazard that runs against the anti-leverage campaign,” said Arthur Kroeber, head of research at the economic research firm Gavekal Dragonomics.
The country’s corporate sector has $27 trillion worth of debt, more than any other country in the world, according to the Institute of International Finance. By comparison, that is the total amount of debt held by the United States government.
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Yet if the authorities let Evergrande fail, they could hurt some of the estimated more than one million Chinese home buyers who have bought apartments from the company and are waiting for them to be built and delivered. A collapse could also slam construction workers and subcontractors who are waiting to be paid.
Beyond the company itself, the authorities risk sending a chill through China’s property market and beyond, shaking the confidence of households to buy everything from home appliances to cars.
As Evergrande has struggled to sell its properties, many of the nation’s home buyers have been put off from buying property. Evergrande this week reported that its own sales of new apartments dropped by 97 percent over September and part of October compared with the previous year, a period that is typically the peak selling season for Chinese property developers.
Across China, new home prices fell for the first time in more than six years in September compared with the previous month, according to data from China’s National Bureau of Statistics. Evergrande’s financial troubles have already spilled over to other developers, three of which have defaulted on their own debt in recent days.
Even as Evergrande appeared to appease some investors and narrowly avert a default on one bond payment on Friday, it will need to come up with more money to meet deadlines for other debt payments in the coming days and weeks.
“China Evergrande needs access to funding in order for its business to operate,” said Daniel Anderson, a Hong Kong-based partner of the law firm Ropes & Gray. If the company can’t find the money to make future payments, it still risks a default.
“A default would give holders of those defaulted bonds the right to accelerate,” Mr. Anderson said, “which could trigger defaults under other bonds and indebtedness.”