China Evergrande’s managed restructuring is under way; stocks and bonds sink

Fox Business Flash top headlines for December 6

Check out what’s clicking on FoxBusiness.com.

China Evergrande Group’s EGRNF -12.86% stocks and bonds fell to historic lows, after Chinese authorities stepped up their involvement in the company’s affairs and the indebted developer moved closer to a reorganization of its hefty international debt.

Evergrande was also running up against a payment deadline, as it has done several times in recent months. The 30-day grace period on $82.5 million in interest payments from two sets of dollar bonds issued by Evergrande’s Scenery Journey Ltd. unit ends Monday, said Iris Chen, a credit analyst at Nomura. Ms. Chen said failure to pay the coupons would trigger a default.

Late Friday, Evergrande warned it had been asked to pay $260 million under a debt guarantee, and said for the first time directly that it planned to work with offshore creditors on a restructuring.

BEYOND EVERGRANDE, CHINA'S PROPERTY MARKET FACES A $5 TRILLION RECKONING

A general view shows the Evergrande Center building in Shanghai on October 9, 2021. (Photo by Hector RETAMAL / AFP) (Photo by HECTOR RETAMAL/AFP via Getty Images) (Photo by HECTOR RETAMAL/AFP via Getty Images / Getty Images)

Soon afterward, the government of Evergrande’s home province, Guangdong, said it would dispatch a working group to help the company with risk management. The central bank and several other Chinese regulators issued statements about Evergrande, stressing it was suffering from distinct challenges, and said they would work to keep the broader property market stable.

Evergrande said Monday that "in view of the operations and financial challenges" it is facing, its board has set up a risk-management committee whose members include representatives from several state-owned enterprises. They include Guangdong Holdings Ltd., an investment-holding company controlled by the provincial government, and China Cinda Asset Management Co., one of the country’s largest managers of distressed assets.

Evergrande’s founder and chairman, Hui Ka Yan, and its chief financial officer, Pan Darong, are also on the committee, which "will play an important role in mitigating and eliminating the future risks of the Group," the company said.

"The managed restructuring of Evergrande has officially started," economists at Citigroup wrote in a note to clients. "We see this as a positive development, and the uncertainty associated with the debt resolution of the second-largest developer in China has been finally removed."

The process of thrashing out a restructuring is still in its very early stages. Evergrande has had conversations with offshore creditors, but hasn’t formally begun talking with them about what a restructuring would look like, a person familiar with the matter said Monday.

US OFFICIALS WON'T ATTEND BEIJING WINTER OLYMPICS

On Monday, Evergrande’s shares fell almost 20% to 1.81 Hong Kong dollars a share, equivalent to $0.23, closing at their lowest level since 2010, FactSet data showed. Evergrande’s 8.75% bonds due 2025 were quoted at less than 18.1 cents on the dollar, according to Tradeweb, a record low.

The coordinated statements from Chinese authorities suggested a consensus had been reached on how to deal with Evergrande, and showed they took Evergrande’s most recent financial difficulty seriously, said Tao Wang, the head of Asia economics and chief China economist at UBS’s investment bank.

"They are trying to manage the restructuring process and at the same time they’re also trying to reassure the market, other developers, and so on, that they will try to limit the damage of Evergrande’s default on the rest of the sector," Ms. Wang said.

As of end-June, Evergrande had total debts of the equivalent of roughly $89 billion, out of a broader set of liabilities topping more than $300 billion. Most of its debt is onshore but it has nearly $20 billion in offshore bonds.

CLICK HERE TO READ MORE ON FOX BUSINESS

In recent months, Evergrande has avoided default on several occasions by making overdue interest payments on dollar bonds shortly before the end of a grace period.

Source: Read Full Article