Offshore investors in China Evergrande threatened with “big losses” after the second default

SHANGHAI / Beijing, Sept. 30 (Reuters) – China Evergrande Group (3333.HK) failed to pay bond interest due on Wednesday, two bondholders said, their second unpaid offshore debt payment in a week despite the company using Liquidity squeeze is trying hard to meet its obligations on its home market.

The company, which is under a mountain of debt of $ 305 billion

With liabilities amounting to 2% of China’s GDP, Evergrande has raised concerns that its troubles could spread to the financial system and reverberate around the world, although worries have eased somewhat after the central bank promised to protect homebuyers’ interests.

However, the developer’s silence on its offshore payment obligations has left global investors wondering if they will face huge losses when the 30-day grace period for coupons due on September 23 and September 29 ends.

Some offshore Evergrande bondholders would not have received interest payments or any notice by the end of Wednesday New York time, said those familiar with the matter, who refused to be identified due to the sensitivity of the issue.

An Evergrande spokesman did not have an immediate opinion. Reuters has been unable to determine whether Evergrande has told bondholders what it plans to do in relation to the coupon payment due Wednesday.

The two missed offshore payments come as the company, which has nearly $ 20 billion in offshore debt, faces deadlines next month on dollar bond coupon payments totaling $ 162.38 million.

Once China’s top-selling developer, Evergrande is now expected to be one of the country’s largest restructurings of all time. It has prioritized its onshore liabilities amid concerns about its problems that could spark social unrest.

“I cannot imagine that there is a great deal of willingness to give offshore bondholders a fairer outcome than onshore banks, let alone home buyers and people who have lent through the personal credit structures on land,” said Alexander Aitken, Partner at Herbert Smith Freehills in Hong Kong.

“Of course, there is also a structural subordination to offshore legally, which means that the lenders of Evergrande’s onshore subsidiaries are paid before the lenders of the parent company or an offshore bond issuer.”


Beijing is unlikely to step in directly to resolve Evergrande’s crisis in the form of a bailout, but analysts say it is wary of a chaotic collapse that could fuel unrest among local investors, suppliers and home buyers.

Authorities in the past few days have been pushing state-owned companies and government-sponsored real estate developers to buy some Evergrande properties to reduce such risks.

Some instant messaging groups used by people who owed Evergrande money to organize protests and discuss claims have been blocked on Tencent Holdings WeChat platform, group members said Wednesday.

Evergrande said Wednesday that it would sell a 9.99 billion yuan ($ 1.5 billion) stake in Shengjing Bank Co Ltd (2066.HK) to a state-owned asset management company.

The bank, one of Evergrande’s primary lenders, demanded that all net proceeds from the sale be used to pay off the debt of the developer at Shengjing, which Evergrande had over 7 billion yuan in loans in the first half of last year.

Separately, Evergrande’s Pearl River Delta business said in a WeChat post Tuesday that nearly 20 developments in the area resumed with construction. The post showed construction photos from various locations and said work has been accelerating since Evergrande promised to deliver homes to buyers earlier this month.

Its main onshore unit, Hengda Real Estate Group, announced on September 23 that it had decided to pay onshore coupons through “private negotiations”.

Evergrande’s shares opened significantly higher on Thursday, rising as much as 5.21% before reversing price and falling as high as 7.17%. The stock lost 5% in afternoon trading.

“Regardless of how the debt is restructured, Evergrande shareholders and investors in offshore US dollar corporate bonds will suffer huge losses,” Jing Sima, chief strategist for China at BCA Research, said in a press release.

($ 1 = 6.4641 Chinese Yuan)

Reporting by Anne Marie Roantree, Clare Jim, Alun John and Donny Kwok in Hong Kong, Xiao Han in Beijing, Andrew Galbraith in Shanghai; Letter from Sumeet Chatterjee; Editing by Christopher Cushing, Gerry Doyle and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.


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