Evergrande is heading for restructuring; The state reduces the risk by Reuters

By Clare Jim

HONG KONG (Reuters) – China Evergrande Group has set up a risk management commission when the developer of the non-cash property is one month closer to a month of debt restructuring in the global markets and the world’s second largest economy.

The real estate giant, which is facing more than $ 300 billion in liabilities and is at risk of China’s biggest ever failure, said Monday that the commission would bring together state officials and play an important role in “mitigating and eliminating future risks.” “of the group.

On Friday, Evergrand said it had admitted that it wanted to restructure its offshore debt after failing to meet its financial obligations, which prompted the southern provincial government of Guangdong province, which is headquartered, to help manage it. fall.

“Evergrande is trying to sell its debt-repaying assets, but Friday’s statement basically says it will‘ give birth ’and need help,” said Conita Hung Tiger Faith Asset Management’s director of investment strategy. “This sends a very bad signal.”

Shares of Evergrande fell to a record low on Monday, again on the threshold of default, at $ 82.5 million in shares at the end of the 30-day grace period.

At the end of the Asian schedule, the two bondholders said they had not yet received payment.

Evergrand, which has made 11-hour coupon payments in the past, declined to comment.

Declaring Evergrande a formal default would trigger a wave of cross-preferences that would affect the real estate sector and beyond, jeopardizing global investor confidence, with the creation of the Coronavirus Omicron variant already shaken.

“Until there is another announcement, everyone is waiting to see if this will be the first real launch event. It has also been set against this week’s planned sugar market,” said Karl Clowry, a partner at London’s Addleshaw Goddard.

(Chart: Evergrande would be the second largest corporate EM by default Evergrande would be the second largest corporate EM by default, https://graphics.reuters.com/EMERGING-DEFAULTS/movanjdlrpa/chart.png)

Chinese authorities have stepped up efforts to ensure that markets can withstand Evergrand’s ills.

In a recent move, China’s central bank on Monday said it would cut the amount of money banks need to hold in reserve, the second move this year, releasing $ 188 billion in long-term liquidity to slow economic growth.

Shares of Evergrand fell 20% on Monday after closing at a low of HK $ 1.81 on Friday night when creditors demanded $ 260 million and could not guarantee funds to return the coupon, prompting authorities to call their president.

Analysts said the authorities’ efforts indicated that Evergrande had probably entered a process of restructuring its already managed debt assets.

Morgan Stanley (NYSE 🙂 said the process will lead to coordination between authorities to maintain real estate project operations, and negotiate with land creditors to secure financing for the completion of projects.

Regulators would also facilitate debt restructuring talks with offshore creditors after stabilizing operations, the U.S. investment bank said in a report.

The recent fall in evergrande dollar-denominated bonds has accelerated with the March 2022 issue falling 4.35 cents to $ 27.7 cents, while other issues such as the 2024 and 2025 bonds fell to less than 20 cents, MarketAxess data showed.

NARROW LIQUIDITY

The company is just one of the liquidity-hungry developers as a result of regulatory debt cuts, leading to non-compliance with offshore debt, a downgrade of credit ratings and sales of shares and bonds by developers.

To stop the unrest, regulators have been asking banks since October to ease loans for the usual financing needs of developers and allow more real estate companies to sell home bonds.

However, the government may need to significantly step up its policy easing measures to prevent a sharp decline in the real estate sector in the spring as amortization pressures increase, Japanese investment bank Nomura said in a report on Sunday.

Quarterly dollar bond yields will almost double to $ 19.8 billion in the first quarter and $ 18.5 billion in the second.

Relieving measures such as the ability to sell domestic bonds is unlikely to help Evergrande refinance because there would be no demand for its banknotes, CGS-CIMB Securities said on Monday.

Evergrand’s inability to sell projects – with sales at almost zero in November – makes it “very difficult” for the brokerage to pay off its short-term debt.

On Monday, smaller developer Sunshine 100 China Holdings Ltd said a $ 170 million bond for Dec. 5 had failed “including the macroeconomic environment and the real estate industry due to liquidity problems caused by the adverse effects of a number of factors.”

The arrears will affect the default provisions under other debt instruments, he said.

Last week, Kaisa Group Holdings Ltd, one of China’s largest offshore debtors among developers after Evergrand, said it had rejected its offer to exchange its 6.5% offshore bonds for Dec. 7, putting it in jeopardy.

The developer has begun talks with some bondholders to extend the $ 400 million debt repayment period, sources told Reuters.

A smaller rival, China Aoyuan Property Group Ltd, also said last week that creditors had demanded a repayment of $ 651.2 million due to a downgrade of credit ratings, and that they might be unable to pay due to a lack of liquidity.

Aoyuan President Guo Zi Wen on Friday told executives at an internal meeting to have “wartime thinking” to ensure the functioning and delivery of projects and to fund returns, a person with direct knowledge of the subject told Reuters.

These tasks will be the priority of the promoter, and the person said he will stop negotiating the return of bonds to professional organizations in Hong Kong, the person said, refusing to identify them as a private matter.

Aoyuan did not respond to a request for comment.

The developer’s share price fell nearly 8% on Monday. Kais lost 2.2% and Sunshine 100 lost 14%.

($ 1 = 6.3724 renminbi)