Singapore: china evergrande As the interest payment deadline on Friday slipped into a limbo of sorts, global markets watching for signs of default have left investors on tenterhooks over the fate of the troubled asset giant.
The company is owed $305 billion, is running short of cash and markets are concerned that a collapse could pose systemic risks to China’s financial system and reverberate around the world.
China’s central bank again injected cash into the banking system on Friday, in what is seen as a sign of support for the markets. But officials are silent on Evergrande’s plight and Chinese state media have given no clue about the rescue plan.
Evergrande hired financial advisors and warned of default last week, and world markets fell sharply on Monday amid fears of contagion, though they have stabilized.
In its offices, furious small investors have resisted attempting to reclaim life savings steeped in its assets and wealth-management products.
Evergrande has promised to prioritize such investors and this week resolved a coupon payment on domestic bonds, giving a ray of hope to the markets. But it has said nothing about the $83.5 million offshore interest payment that was due Thursday or the $47.5 million payment due next week.
It enters a 30-day grace period if it fails to pay Thursday’s dues and will be in default if that window is passed without settling the loan. Bondholders are starting to think that it may be a month or so before things become clear.
As business was underway in Hong Kong on Friday, no announcement was made about payments. A company spokesperson did not respond to requests for comment.
“Current market pricing predicts that investors in Evergrande’s dollar bond have little chance of recovery,” it said. jennifer jamesJanus is a Portfolio Manager and Leading Emerging Markets Analyst at Henderson Investors.
“The likely outcome is that the company will engage with creditors to come up with a restructuring agreement,” she said.
“How China handles Evergrande and others could be consequential. If mismanaged, a loss of trust could have a contagious effect on other financial markets.”
play for time
Global markets have started a recovery after a sharp sell-off, trading on the premise that Evergrande’s troubles can be contained.
Evergrande only has some $20 billion in debt outstanding offshore. Yet the risks at home are substantial as a collapse could crash the property sector which comprises a quarter of China’s economy and is a significant storehouse of wealth.
“Housing sales and investment could inevitably slow further – this would reduce GDP growth by about 1 percentage point,” Societe Generale analysts said in a note.
“The longer policymakers wait before taking action, the harder the risk of landing.”
Yet so far there have been some signs of official intervention. The People’s Bank of China’s 270 billion yuan ($42 billion) cash injection this week is the biggest weekly total since January and has helped put a floor on the bottom of shares.
Bloomberg Law also reported that regulators had asked Evergrande to avoid a near-term default, citing unidentified people familiar with the matter.
Although wall street journal Authorities told local governments to be prepared for Evergrande’s fall, citing unnamed officials.
“Given the deliberate pace of Chinese policy making, officials may choose to play for the time being,” said wei-liang chang, a macro strategist at DBS Bank in Singapore.
They said they could extend liquidity support through a grace period on Evergrande’s coupon payments, noting that there is no dollar bond maturity until March 2022.
Shares of Evergrande returned some gains on Thursday and fell 3% on Friday, while stock of its electric-vehicle unit fell 18% to a four-year low. Its dollar bond traded about 30 cents on the dollar, with an imminent payment.
The company is owed $305 billion, is running short of cash and markets are concerned that a collapse could pose systemic risks to China’s financial system and reverberate around the world.
China’s central bank again injected cash into the banking system on Friday, in what is seen as a sign of support for the markets. But officials are silent on Evergrande’s plight and Chinese state media have given no clue about the rescue plan.
Evergrande hired financial advisors and warned of default last week, and world markets fell sharply on Monday amid fears of contagion, though they have stabilized.
In its offices, furious small investors have resisted attempting to reclaim life savings steeped in its assets and wealth-management products.
Evergrande has promised to prioritize such investors and this week resolved a coupon payment on domestic bonds, giving a ray of hope to the markets. But it has said nothing about the $83.5 million offshore interest payment that was due Thursday or the $47.5 million payment due next week.
It enters a 30-day grace period if it fails to pay Thursday’s dues and will be in default if that window is passed without settling the loan. Bondholders are starting to think that it may be a month or so before things become clear.
As business was underway in Hong Kong on Friday, no announcement was made about payments. A company spokesperson did not respond to requests for comment.
“Current market pricing predicts that investors in Evergrande’s dollar bond have little chance of recovery,” it said. jennifer jamesJanus is a Portfolio Manager and Leading Emerging Markets Analyst at Henderson Investors.
“The likely outcome is that the company will engage with creditors to come up with a restructuring agreement,” she said.
“How China handles Evergrande and others could be consequential. If mismanaged, a loss of trust could have a contagious effect on other financial markets.”
play for time
Global markets have started a recovery after a sharp sell-off, trading on the premise that Evergrande’s troubles can be contained.
Evergrande only has some $20 billion in debt outstanding offshore. Yet the risks at home are substantial as a collapse could crash the property sector which comprises a quarter of China’s economy and is a significant storehouse of wealth.
“Housing sales and investment could inevitably slow further – this would reduce GDP growth by about 1 percentage point,” Societe Generale analysts said in a note.
“The longer policymakers wait before taking action, the harder the risk of landing.”
Yet so far there have been some signs of official intervention. The People’s Bank of China’s 270 billion yuan ($42 billion) cash injection this week is the biggest weekly total since January and has helped put a floor on the bottom of shares.
Bloomberg Law also reported that regulators had asked Evergrande to avoid a near-term default, citing unidentified people familiar with the matter.
Although wall street journal Authorities told local governments to be prepared for Evergrande’s fall, citing unnamed officials.
“Given the deliberate pace of Chinese policy making, officials may choose to play for the time being,” said wei-liang chang, a macro strategist at DBS Bank in Singapore.
They said they could extend liquidity support through a grace period on Evergrande’s coupon payments, noting that there is no dollar bond maturity until March 2022.
Shares of Evergrande returned some gains on Thursday and fell 3% on Friday, while stock of its electric-vehicle unit fell 18% to a four-year low. Its dollar bond traded about 30 cents on the dollar, with an imminent payment.
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