Evergrande Group, the financially distressed Chinese real estate developer, paid $83.5 million in overdue interest to international bondholders Thursday, at least temporarily fending off default, according to published reports.
According to reports in The Wall Street Journal and Bloomberg News, the payment was initially reported by the Securities Times, a financial publication operated by the Communist Party’s People’s Daily newspaper.
They surprise interest payment on $2.03 billion in bonds was made just two days before the end of a 30-day grace period, after which bondholders could send a notice of default, the Journal reported.
The second-largest property development company in China, the Evergrande Group carries the biggest debt burden of any publicly traded real estate management or development company in the world — more than $300 billion.
The Journal reported that many international bondholders had expected Evergrande to fail to make its dollar bond payments before the end of the grace period. The company has also skipped other coupon payments in the past few weeks, and has outstanding dollar debt valued at about $20 billion, the Journal said.
Paul Lukaszewski, head of corporate debt for the Asia Pacific region at asset-management firm Abrdn, told the Journal that the payment was a surprise, but demonstrated that Evergrande “is treating its onshore and offshore bond creditors the same for the time being,”
If Evergrande doesn’t continue to make its interest payments, the company risks sliding into default, triggering a technical default among creditors, estimated at 130 financial institutions. It would also trigger wholesale write-downs (asset value decreases) of an estimated $305 billion in outstanding debts.
Thursday’s payment postponed default for at least a week. The company is still on the hook for another $45 million payment by Oct. 29, when another grace period on missed interest payments ends, according to reports.
The payment followed reports on Thursday that Evergrande had secured an extension on a defaulted bond, just a day after a deal to sell a $2.6 billion stake in its property services unit collapsed.
REDD International reported that Evergrande had arranged for a three-month extension for the date of maturity on a $260 million bond issued by Jumbo Fortune Enterprises that Evergrande had guaranteed. The extension was granted after Evergrande’s billionaire Chairman Hui Ka Yan agreed to use his personal wealth to provide additional collateral to a Chinese residential project tied to the bond, to ensure the project is completed and that bondholders would receive their dues.
The extension came just a day after Evergrande said Wednesday that a deal to sell a 50.1% stake in Evergrande Property Services Group Ltd to Hopson Development Holdings Ltd. had collapsed. Evergrande said Hopson, a smaller competitor, had failed to meet the "prerequisite to make a general offer,” according to Reuters.
Hopson, however, said it is still exploring its options. The company, Reuters reported, said all major banks were positive toward the investment, and that a third-party financial adviser had verified the company had the resources needed to acquire the 50.1% stake.
That deal is the second to fall through as Evergrande has sought to raise capital over the past several weeks.
Reuters said two sources told it last week that the $1.7 billion sale of Evergrande’s Hong Kong headquarters had failed amid buyer concerns over the developer's worsening financial situation.
