Evergrande moves closer to default again as China tries to calm markets

Shares in China Evergrande Group fell to a record low on Monday as authorities stepped in to calm markets after the heavily indebted property developer warned of a coupon payment that brought it closer to default.

China's central bank said it would cut reserve requirements for banks, while the Politburo promised to promote a healthy real estate sector, reinforcing previous messages to investors that Evergrande's problems could be contained.

Having made three 11-hour coupon payments in the past two months, Evergrande on Monday again faced the end of a 30-day grace period with payments totalling $82.5 million.

Its shares fell 20 per cent after a statement on Friday saying lenders had demanded $260 million and that it could not guarantee funds to pay the coupon, prompting authorities to summon its chairman.

As of close of business in Asia, two bondholders said they had not yet received payments from Evergrande. Evergrande declined to comment.

Once China's best-selling developer, Evergrande is struggling with more than $300 billion worth of liabilities, meaning a disorderly collapse could affect the property sector and beyond.

BODIES ACT

His Friday statement was followed by a statement from authorities in his home province of Guangdong saying they would send a team at Evergrande's request to oversee risk management, strengthen internal controls and maintain operations - the first public move by the state to intervene directly to manage any fallout.

The central bank, the banking and insurance regulator and the securities regulator have also issued statements saying that the risk to the real estate sector could be limited.

Analysts said the authorities' concerted efforts indicated that Evergrande had probably already entered the process of restructuring managed debt and assets.

Morgan Stanley said such a process would involve coordination between authorities to maintain real estate operations, as well as negotiations with onshore lenders to secure financing to complete the project.

Regulators are also likely to facilitate discussions on debt restructuring with offshore lenders once operations have stabilised, the US investment bank said in a report.

After a flurry of announcements on Monday, Evergrande shares fell 20 per cent to close at a record low of HK$1.81.

Its November 2022 bond - one of two bonds that could be in default if defaulted on Monday - was trading at a distressed price of 18.560 US cents on the dollar, down from 20.083 cents at Friday's close.

"Evergrande has been trying to sell assets to pay down debt, but Friday's statement basically says the company is going to" give up "and needs help," said Conita Hung, director of investment strategy at Tiger Faith Asset Management. "This is a very bad signal."

Given the large size of the debt, she said it would take years to resolve Evergrande's problems, even with government intervention.

LIQUIDITY IGNITION

The firm is just one of many developers who have lacked liquidity because of regulatory restrictions on borrowing, leading to offshore debt defaults, credit rating downgrades and a sell-off in developer shares and bonds.

To stem the turmoil, regulators have since October called on banks to ease lending to meet the usual financial needs of developers and allowed more property companies to sell domestic bonds.

To free up funds, Premier Li Keqiang said on Friday that China would reduce the bank reserve requirement rate "in a timely manner".

Nevertheless, the government may have to step up policy easing measures significantly in the spring to prevent a sharp downturn in the real estate sector as pressure for debt repayment intensifies, Japanese investment bank Nomura said in a statement on Sunday.

Quarterly payments on dollar-denominated bonds will nearly double to $19.8 billion in the first quarter and $18.5 billion in the second.

CGS-CIMB Securities said Monday that easing measures, such as the ability to sell domestic bonds, are unlikely to help Evergrande refinance because there will be no demand for its bonds.

Evergrande's inability to sell projects - with almost zero sales in November - also makes payments on short-term debt "highly unlikely", the brokerage said.

REVIEW

Smaller developer Sunshine 100 China Holdings Ltd said on Monday it had defaulted on its $170 million bond due December 5 "due to liquidity problems arising from the adverse impact of several factors, including the macroeconomic environment and the real estate industry".

The delinquency will lead to cross-default provisions on some other debt instruments, he said.

Last week, Kaisa Group Holdings Ltd, China's largest offshore borrower among developers after Evergrande, said bondholders rejected a 6.5 per cent offshore exchange offer due December 7, putting the company at risk of default.

Sources told Exness Forex Broker that the developer has started negotiations with some bondholders to extend the $400 million debt.

Smaller rival China Aoyuan Property Group Ltd also said last week that creditors had demanded payment of $651.2 million because of multiple credit rating downgrades and that it may not be able to pay due to lack of liquidity.

Aoyuan chairman Guo Zi Wen told management at an internal meeting on Friday that it needed to have a "wartime mindset" to ensure that projects were running and running and to fund repayments, a person with direct knowledge of the matter told Reuters.

Such tasks will be a priority for the developer, who will leave the bond redemption negotiations to professional institutions in Hong Kong, the person said, declining to be named as the matter is private.

Aoyuan did not respond to a request for comment.

The developer's share price fell almost 8% on Monday. Kaisa lost 2.2% and the Sunshine 100 lost 14%.

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