Evegrande averts last-minute interest payments default on dollar bonds

By: Ruchi Gupta
Ruchi Gupta
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on Nov 11, 2021
  • China Evergrande Group makes last-minute dollar bonds interest payments to avoid default
  • Beijing could take steps to address the liquidity crisis developers face
  • Short sellers unwinding negative bets on property equities

Embattled Chinese real estate developer, China Evergrande Group (HKG-03333), avoided the default of interest payments on dollar bonds by making a last-minute move to pay the interest. According to international clearing company Clearstream spokesperson, the firm received late interest payments on three US dollar-denominated bonds issued by the property developer.

Beijing could take steps to alleviate property liquidity crisis

Interestingly there are growing indications that China could take measures to alleviate the nation’s developer liquidity crisis. According to a front-page report in the China Securities Journal, bank loans to property firms increased “sharply” in October, and the trend is projected to continue this month.

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Chinese developers continue to face challenges of paying interest in dollar bonds. According to documents seen by Bloomberg, Kaisa Group Holdings Ltd is facing two US dollar-bond interest payments of around $88.4 million this week. This comes days after the real estate developer missed installments on financial instruments it guaranteed. Before events of default occur, 30-day grace periods apply to this week’s interest payments.

As the fallout widens, policymakers may be compelled to take steps to alleviate the liquidity problem. According to a local media report, officials may lift restrictions on domestic bond issuance to avoid deteriorating financial conditions. The news spurred advances in property companies ‘ bonds despite analysts warning that such a shift would primarily help higher-quality corporations. State-owned companies have also requested regulators to alter the “three red lines” financing limits for mergers in the industry to lift developer stocks.

Short sellers targeting struggling property stocks

Short sellers unwinding their negative bets helped a barometer of real estate stocks rise 3.3 percent, set for its highest two-day increase since July 2020. On Wednesday, developer stocks and bonds rose in anticipation that China would allow state-owned property companies to buy struggling rivals without violating leverage rules. State-owned firms had made such a request to authorities, according to Cailian, a local news agency.

On Wednesday, the stock index of real estate companies increased by 6.2 percent. For 13 of the 28 Hong Kong-listed companies on the index, short-selling volume surpassed 20% of total equity turnover. Short selling volume ranked third highest on record for Sunac China, whose shares gained 15%, the most in seven years, as bears were forced to unwind their holdings.

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