The main department of China Evergrande Group has stated that it will pay the coupons on domestic bonds on time, which provides some relief to the nervous market due to concerns that China’s second-largest developer’s default may affect the global financial system.
Evergrande Real Estate Group said in a statement on Wednesday that it will pay the coupon coupon of 5.8% of its September 2025 bond traded in Shenzhen on time on September 23.
The announcement comes when Evergrande, once China’s best-selling developer, is only a few inches away from the key deadline for paying interest on U.S. dollar bonds, even though investors and analysts have played down its troubles and become the country’s “Lehman Brothers”. Threatened, but financial markets are still tight. moment. “This large U.S. investment bank went bankrupt in the subprime mortgage crisis in 2008.
According to data from Refinitiv, the total coupon payment of Evergrande Real Estate is 232 million yuan (35.88 million U.S. dollars).
An informed source who asked not to be named said: “We are still trying to understand what this payment means for other bonds, but I think they will want to stabilize the market and make other coupon payments because they have been carefully reviewed.” No right to talk to the media.
US stock futures, the renminbi and the risk-sensitive Australian dollar rose, while safe-haven assets such as the yen and US Treasuries declined.
Evergrande will pay its onshore bonds on time, but the developer has not yet indicated whether it will be able to pay interest on the USD 83.5 million bond maturing in March 2022 on Thursday. It also has a payment due date of $47.5 million on September 29, which is used to pay the bills in March 2024.
If Evergrande fails to settle the interest within 30 days of the scheduled payment date, both types of bonds will default.
Since Evergrande Real Estate applied for a trading suspension one day on September 16, Evergrande’s onshore exchange trading of bonds has ceased. Although the transaction resumed technically a day later, it can only be carried out through negotiated transactions now, which traders say is to curb volatility.
Although concerns about the spillover effects of the chaotic collapse disrupted the market on Monday, the US stock market was flat on Tuesday, and the Chinese stock market fell in early trading after a two-day public holiday. But China’s real estate index regained lost ground and rose more than 3%, while bank stocks fell about 3%.
Evergrande and China’s broader economy-from retail investors to infrastructure-related companies that measure global commodity demand-are so closely intertwined that fears of contagion have put financial markets in tension.
Analysts at the New York-based Bespoke wrote in a research report on Tuesday: “There are some concerns about the possibility of contagion.” “But so far, this concern has not emerged as a broader credit crunch in the past. Red flags are part of the credit market.”
After concerns about the Evergrande debt crisis swept the global market, the Central Bank of China injected a large amount of short-term cash into the financial system, thus boosting market sentiment.
The People’s Bank of China (PBOC) injected 120 billion yuan (US$18.6 billion) into the banking system through reverse repurchase agreements, with a net capital injection of 90 billion yuan (US$13.9 billion).
“Due to market concerns about Evergrande, the People’s Bank of China’s net capital injection may be aimed at alleviating nervousness,” said Eugene Leow, senior interest rate strategist at DBS Bank in Singapore. “Although the purpose may be to instill discipline, it also needs to prevent spread to the real economy or other sectors.”
Due to concerns about Evergrande’s debt problems, global China-related stocks have fallen in recent days, and the need to calm market tensions is imminent.
Bloomberg reported on Tuesday, citing people familiar with the matter, that Evergrande failed to pay the interest it should pay to creditors of at least two of its largest banks on Monday. Bloomberg said that because the Ministry of Housing and Urban-Rural Development of China has stated that the company cannot pay on time, it is expected that there will be overdue payments.
As investors and policymakers around the world try to assess the potential impact, Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), stated that the US market is better able to absorb the potential of large companies’ defaults than before 2007. Global shock. -The 2009 financial crisis.
Increase in funding positions
Fed Chairman Jerome Powell (Jerome Powell) will most likely be asked about Evergrande’s impact when he speaks after a two-day meeting at 2 pm Eastern Time on Wednesday (1800 GMT). The Federal Reserve is often referred to as the Federal Reserve.
Despite the imminent breach of contract, some funds have been increasing their positions in recent months. Morningstar data and a blog post show that fund giant BlackRock and investment banks HSBC and UBS have been the largest buyers of Evergrande debt.
Other bondholders include UBS Asset Management and Amundi, the largest asset management company in Europe.
In any case of default, Evergrande vacillates between a chaotic collapse, a managed collapse, or a small possibility of a Beijing bailout, and will need to restructure bonds, but analysts expect a lower rate of return for investors.
S&P Global Ratings said on Monday that it believes that the Chinese government will only act when a far-reaching contagion poses a systemic risk to the economy.
“I describe Evergrande as a telegram and controlled detonation,” said Samy Muaddi, portfolio manager of the $5.1 billion T Rowe Price emerging market bond fund, who does not have any positions in the company.
BNP Paribas estimated in a research report that of Evergrande’s 300 billion U.S. dollars in outstanding debt, less than 50 billion U.S. dollars was financed by bank loans, indicating that China’s banking industry will have sufficient buffers to absorb potential Bad debts.
A subsidiary of Citigroup acts as the trustee and payment agent for China Evergrande’s bonds, which will mature in March 2022 with an interest of US$83.5 million due on Thursday.
“We do not have any direct loan exposure to Evergrande; our indirect exposure through counterparty credit risk is very small, and there is no major concentration,” Citigroup spokesperson Danielle Romero-Appsilos on Tuesday Expressed in an email. She declined to comment on Evergrande’s scheduled payment.
Evergrande’s Hong Kong-listed shares fell as much as 7% on Tuesday and 10% the day before, due to concerns that its $305 billion debt could cause widespread losses when China’s financial system collapses. The Hong Kong stock market was closed for a holiday on Wednesday.