Here is what China Evergrande did to avoid defaulting in interest payments

By: Ruchi Gupta
Ruchi Gupta
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on Oct 22, 2021
  • Evergrande maker $83.5 million interest payment for dollar-backed bonds
  • The developer failed to make an interest payment on $2.03 billion of dollar bonds
  • Evergrande to make another $45 million interest payment by October 29

Chinese state-owned media, Securities Times, reported Friday that China Evergrande Group (HKG: 3333) settled an overdue interest payment to overseas bondholders. This unanticipated step allowed the property developer to avoid default.

According to the Securities Times, the Chinese property developer transferred $83.5 million to the trustee for the dollar-backed bonds on Thursday, and the financial institution will pay bondholders.  After failing to make the interest payment on around $2.03 billion of dollar bonds on September 23, 2021, Evergrande was approaching the end of a one-month grace period before bondholders could file a notice of default to the company.

Evergrande’s outstanding debt stands at $20 billion

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Many overseas investors predicted Evergrande would default on its dollar-backed bond payments before the grace period expired. In recent weeks, the corporation has also missed other coupon payments, and it has outstanding dollar debt estimated to be nearly $20 billion.

Abrdn’s corporate debt head for the Asia Pacific region Paul Lukaszewski said that the bond payment was an unexpected positive surprise. Lukaszewski said:

The most important takeaway from Evergrande making the offshore interest payment is that the company is treating its onshore and offshore bond creditors the same for the time being.

Despite this, Evergrande must pay an extra $45 million by October 29, 2021, when the extension on another missing interest payment expires, according to Nomura credit analyst Iris Chen. Chen said:

This does give them extra time, but it’s only buying them a few days unless they already have funds for the next coupon, which is due next Friday. They’re not out of the woods for sure.

Evergrande selling assets to raise cash

International bondholders’ advisers indicate that they have made minimal; progress in engaging the developer. The Shenzhen-based group said on Wednesday, through a regulatory filing it will, “use its best effort to negotiate for the renewal or extension of its borrowings or other alternative arrangements with its creditors.”

Evergrande has been raising finances through assets sale, including subsidiary stakes and a Hong Kong property. The company agreed to sell the majority of its stake in a Chinese commercial bank for $1.55 billion last month to a state-owned firm for $1.55 billion. In addition, Evergrande had planned to dispose of a majority stake in its property-management division to a smaller competitor for around $2.6 billion, but that agreement was scrapped last week.

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