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China Evergrande reaches debt deal – but questions remain

Click to play video: 'Evergrande meltdown: Debt deal reached, but will it satisfy investors?' Evergrande meltdown: Debt deal reached, but will it satisfy investors?
WATCH: China Evergrande agreed to settle interest payments on a domestic bond on Wednesday, while the Chinese central bank injected cash into the banking system, soothing fears the debt-laden property developer could trigger a larger collapse. Anne Gaviola explains what is behind the company’s debt problems, and whether this deal will keep investors satisfied – Sep 22, 2021

China Evergrande agreed to settle interest payments on a domestic bond on Wednesday, while the Chinese central bank injected cash into the banking system, soothing fears of imminent contagion from the debt-laden property developer.

Evergrande, Asia’s biggest junk bond issuer, is so entangled with China’s broader economy that its fate has kept global stock and bond markets on tenterhooks as late debt payments could trigger so-called cross-defaults.

Many financial institutions have exposure to Evergrande through direct loans and indirect holdings, while any defaults will also trigger sell-offs in the high-yield credit market.

In an effort to reassure investors, the People’s Bank of China’s injected 90 billion yuan to the banking system, signaling support for markets as they braced for what is expected to be one of China’s largest-ever debt restructurings.

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Evergrande is scrambling to avoid defaulting on a number of bonds with payments due this week and its main unit, Hengda Real Estate Group, said on Wednesday it had “resolved” one coupon payment due on Thursday on its Shenzhen-traded 5.8 per cent September 2025 bond, via “private negotiations.”

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It did not specify how much interest would be paid or when, nor did Hengda mention Evergrande’s other pressing debts, leaving it unclear what this means for $83.5 million in dollar bond interest payments due on Thursday.

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Evergrande did not immediately respond to questions about its deal or its intentions.

But engagement with bondholders, a common way to avoid default, on top of chairman Hui Ka Yuan’s vow this week that Evergrande would “walk out of its darkest moment,” cheered investors and soothed markets more broadly.

“These events seem to suggest that the company is taking control of the situation and is trying its best to work out a solution with creditors,” Singapore-based Dexter Tan, a senior fixed income analyst at Bondsupermart.com, said.

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Evergrande, which epitomized the borrow-to-build business model and was once China’s top-selling developer, also has a $47.5 million dollar-bond interest payment due next week.

“We do not have a clearer picture as how Evergrande settled its onshore coupon,” Singapore-based Chuanyo Zhou, a credit analyst at Lucror Analytics, said.

“It doesn’t look like a cash payment. It may still miss the coupon on offshore bonds due tomorrow.”

Evergrande’s Hong Kong shares did not trade due to a public holiday but rose 40 per cent in Frankfurt to 0.38 euros ($0.45).

Its dollar bonds maturing next year and in 2024 remained below 30 cents on the dollar.

In the wider market, the U.S. dollar slipped and S&P 500 futures rose in Asia and European trade.

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Global News Morning Market & Business Report – Sept. 20, 2021 – Sep 20, 2021

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