China Evergrande Group averted an official default: what’s next?

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is an active follower of world affairs, technology, an avid reader, and loves to play table tennis in… read more.
on Nov 11, 2021
  • Evergrande made an 11th-hour interest payment on three of its bonds to avoid an official default.
  • Bloomberg's Rebecca Choong Wilkins says the future continues to look bleak for Evergrande.
  • China’s regulator announced plans of loosening domestic bond policies for its real estate companies.

China Evergrande Group (HKG: 03333) made an 11th-hour interest payment on three of its bonds on Thursday to avoid an official default, but the challenges aren’t over for it by a long stretch.

Bloomberg’s Rebecca Choong Wilkins’ take on the Evergrande fiasco

According to Bloomberg’s Rebecca Choong Wilkins, the embattled Chinese real estate developer has secured more room to negotiate, but the future continues to look bleak.

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Without an official default, creditors aren’t, for example, able to petition and file for bankruptcy. But Evergrande does still have quite a few coupons due through the rest of this year. Then next year in March, it has this hefty $2.0 billion bond coming due.

Last night, DMSA (German Market Screening Agency) said it was preparing bankruptcy proceedings against Evergrande and called on other bondholders to join it.

Wilkins: the property sector might have seen a bottom

A day earlier, China’s regulator announced plans of loosening domestic bond policies for its real estate companies – news that saw developers’ bonds and stocks climb to a record in several months. Wilkins added:

I don’t think it’s just Evergrande creditors breathing a sigh of relief this morning. There was also speculation on more flexibility around M&A that acquiring more distressed developers wouldn’t necessarily put their debt onto their balance sheet.

Such announcements, the Bloomberg expert said, are likely to ease the property sector. She, however, confirmed that the idea was to help the larger firms survive while pressure on the smaller developers remains intact.

China’s bank lending data to developers also improved in October – another indication, as per Wilkins, that the real estate sector might have seen a bottom, and things will start to recover from here on.

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