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Too little, too late? Evergrande's tortuous restructuring, asset sales in focus after default averted

Published 10/22/2021, 06:26 AM
Updated 10/22/2021, 06:56 AM
© Reuters. FILE PHOTO: Cranes stand at a construction site near the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song/File Photo

By Anshuman Daga and Scott Murdoch

SINGAPORE/HONG KONG - Unless China Evergrande Group takes quick steps for an orderly restructuring of its debt pile and steps up asset sales, its last-minute bond interest payment this week will do little to shore up creditors' support for the developer, analysts and lawyers said.

In an unexpected move, Evergrande wired an $83.5 million coupon payment due to offshore bondholders, days before a 30-day grace payment period ends on Saturday, a person with direct knowledge of the matter said on Friday.

With more than $300 billion in liabilities, Evergrande, once China's top-selling property developer, faces deep scepticism on whether it can make more near-term coupon payments with its property sales tumbling 30% in the year to Oct. 20.

"While obviously a positive, the coupon payment does not address the overall concerns about Evergrande's sustained liquidity through the first maturity in Q2 2022 and beyond," said John Han, a partner at law firm Kobre & Kim in Hong Kong.

"This only shows that the company is not yet ready for the house to come down completely through a massive cascade of cross defaults. Time is needed for what is planned next," Han said.

Evergrande faces coupon payments totalling nearly $340 million between Nov. 1 and Dec. 28 on its offshore bonds, on top of outstanding missed payments.

The developer has nearly $20 billion in offshore debt.

"Evergrande will still have many debts to be repaid in the short term in the future, and its fundamentals such as (home) sales have not seen any obvious signs of improvement," said Kenny Ng, an analyst at Everbright Sun Hung Kai. "At the same time, the current price of Evergrande's bonds still reflects the lack of confidence in the market for its future," he said. Evergrande's shares closed 4.3% higher on Friday, but are still down 82% so far this year. Its dollar bond prices rose, with its April 2022 and 2023 notes jumping more than 10%, data from Duration Finance showed, though they still traded at deeply distressed levels of around a quarter of their face value.

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"Its sale of the (property) services unit failed and its September and October sales were getting worse and worse," Castor Pang, head of research at Core Pacific. "It has very little cash."

Nomura credit analyst Iris Chen said in a note that it was hard to fully understand the logic behind the latest payment unless Evergrande is able to pay more coupon payments till mid-November.

Terming an Evergrande default as inevitable, Chen said: "we actually think it is better for the company to default earlier rather than later to prevent repayment of onshore debt using offshore assets."

Evergrande formally abandoned plans to sell a $2.6 billion stake in one of its key units on Wednesday.

The main unit of Evergrande said on Friday that it had not made substantial progress in disposing of the developer's assets.

Hengda Real Estate Group Co said China Evergrande cannot guarantee it will be able to continue to meet financial obligations under contracts, in a statement posted on the website of the Shenzhen Stock Exchange that echoed one from Evergrande earlier in the week.

"Multiple financing channels are effectively closed to developers in response to the policies implemented by the government. For those channels to reopen, investors have to believe these companies can remain going concerns," said Paul Lukaszewski, head of corporate debt, Asia Pacific, at abrdn.

"This means they (property developers) need to have sufficient access to their own cash flows and to refinancing options to address their debt as it becomes due," he said.

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