HONG KONG/SINGAPORE, RAW – China Evergrande Group US dollar bondholders are still waiting for information about a key interest payment due on Thursday, with some holders having given up hope of getting a coupon payment by the deadline, a source familiar with the matter says.
The property developer was instead expected to provide more information in the coming month, the source said.
Global investors have been on tenterhooks ahead of Evergrande’s payment obligations as there are fears its difficulties could pose systemic risks to China’s financial system and possibly spill over to other markets.
Evergrande, which epitomises the borrow-to-build business model and was once China’s top-selling developer, has run into trouble over the past few months as officials in Beijing tightened rules in the property sector to rein in debt levels and speculation.
“Clearly, the risk is a ripple effect, especially for Wall Street correlated world markets which have become very used to bailouts,” wrote Christopher Wood at Jefferies in a research report.
Evergrande was due to pay $US83.5 million ($A114.3 million) in interest on a $US2 billion offshore bond on Thursday and also has a $US47.5 million US-dollar-bond interest payment due next week.
Both would default if the company, which has outstanding debt of $US305 billion, fails to settle the interest within 30 days of the scheduled payment dates.
Some holders had given up hope of getting a coupon payment on the $2 billion offshore bond by Thursday, a source familiar with the matter said.
A holder of the US dollar bond said that they had not received payment as of midnight Thursday in Asia.
As the close of the day drew nearer in New York, there had still been no announcements by Evergrande about the payment. A company spokesperson did not respond to requests for comment.
Earlier on Thursday, Bloomberg Law reported Chinese regulators had asked Evergrande executives to avoid a near-term default on its US dollar bonds and to communicate proactively with bondholders.
“They don’t want a default right now,” said Connor Yuan, the head of emerging market flow credit trading for Asia at Goldman Sachs.
“Given there is a 30-day grace period, today it’s very likely the coupon won’t be made but it is possible that they try to get a deal done in the next 30 days.”
The Wall Street Journal reported separately on Thursday Chinese authorities were asking local governments to prepare for the potential downfall of Evergrande, China’s second-biggest property developer, citing officials familiar with the talks.
A spokesperson for Evergrande declined to comment on the two reports.
“Evergrande is in a serious situation but we see it as quite contained both in terms of the sector, mainly Chinese real estate, and mostly Chinese counterparties,” Jean-Yves Fillion, chief executive officer of BNP Paribas USA, told CNBC on Thursday.
“Historically we have seen the Chinese administration taking care of these type of situations and resolving them. The linkages between the Evergrande situation and the strong US equity market we see as not very significant.”
Shares in Evergrande rose nearly 18 per cent on Thursday after it said it had resolved the coupon payment for one of its domestic, onshore bonds, although the stock is down more than 80 per cent this year.
Evergrande Chairman Hui Ka Yan urged his executives late on Wednesday to ensure the delivery of quality properties and the redemption of its wealth management products, which are typically held by millions of retail investors in China.
He did not mention the company’s offshore debt, however.
The WSJ said local governments had been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions.
They have also been ordered to talk to local state-owned and private property developers to prepare to take over projects and set up law-enforcement teams to monitor public anger and “mass incidents,” a euphemism for protests, it said.
Analysts said the moves by Beijing underscored the pressure on Evergrande, whose liabilities run to 2 per cent of China’s gross domestic product, to contain the fallout from its credit crunch and protect ‘mom-and-pop investors’ over professional creditors.