All eyes are on the Chinese government, still silent, in the Evergrande case, the Chinese real estate giant crushed by some 260 billion euros in debt. Threatened with bankruptcy, the private developer announced, Wednesday, September 22, the payment of interest on a small part of its debt, but it did not reassure the financial markets which are still waiting to know if Beijing will come to its aid.
The fear of seeing a repeat in China, the world’s second-largest economy, a Lehman Brothers-style scenario, whose bankruptcy precipitated the 2008 crisis in the United States and around the world, has plunged the financial centers in recent days.
As the default threatens, the promoter announced that it had reached an agreement with bondholders on a small part of its debt. In a press release sent to the Shenzhen Stock Exchange (southern China), the group said that one of its subsidiaries, Hengda Real Estate, had negotiated an interest repayment plan on a bond maturing in 2025.
According to the Bloomberg financial agency, Evergrande would repay 232 million yuan (30.5 million euros) of debt due Thursday on this 5.8% bond limited to the domestic bond market. The carriers “Who bought and hold these bonds” before Wednesday “Are entitled to payment of interest”, specifies the press release.
Almost a million and a half unfinished homes
But the real estate giant, headquartered in Shenzhen, is far from off the hook given the total amount of its debt. Other loans mature Thursday on the international bond market and the group has not specified how it intends to settle them.
The partial reimbursement announcement “Will help and we can hope that it will reduce a little the volatility and the fall of the markets”, said Gary Dugan, of the investment advisory firm Global CIO Office in Singapore. “But for confidence to return for good, the market would need to see the prospects for restructuring at Evergrande”, he told Bloomberg.
However, the communist regime did not specify whether it intended to help bail out the private group, of which 1.4 million homes would remain unfinished, to the chagrin of so many cheated owners.
Last week, dozens of them protested outside the group’s headquarters as well as elsewhere in the country. Creditors, employees and suppliers are also demanding to be paid by Evergrande, which increased investments until Beijing tightened borrowing rules last year.
The chairman of the group told his staff that Evergrande “Would soon come out of its darkest period”, state media reported on Tuesday. Billionaire Xu Jiayin, once the richest man in China, assured that construction would resume completely and that the group would bring “A response to buyers, investors, partners and financial institutions”. He did not provide further details.
The announcement of the payment of interest was not enough to reassure the markets, the Shenzhen and Shanghai stock exchanges remaining down Wednesday morning, after four days of hiatus due to public holidays. The Hong Kong Stock Exchange was in turn closed on Wednesday.
Tuesday, if the European places rebounded, Wall Street ended in dispersed order, the Dow Jones index dropping 0.15%, while analysts seek to project themselves beyond a possible default of payment.
“Investors are wondering if the Chinese authorities will be able to manage the consequences once the financial deadline has passed”, says Michael Hewson, CMC Markets analyst. It seems accepted, according to him, that a default of payment of Evergrande is “A matter of time” and “The real question concerns how it will be managed”.