Interest payment due: a sigh of relief in the Evergrande case

Status: 10/22/2021 10:25 a.m.

According to media reports, the heavily indebted Chinese real estate company Evergrande is said to have ventured with a long overdue interest payment. Is that more than a time gain?

The tumbling Chinese real estate company has apparently made a due bond interest payment of $ 83.5 million in an escrow account. The news agencies report that Reuters and Bloomberg citing an insider. The state-run Chinese financial newspaper “The Securities Times” had previously reported on the interest payment. The company itself has not yet commented on this.

The payment deadline would have finally expired on Saturday. The money was actually due on September 23, but there was a grace period of 30 days. Failure to pay the interest could have resulted in a formal default by the company and default on other Evergrande dollar bonds.

Contagion risks controversial

Experts disagree about the possible consequences, including for the global financial markets. Some experts fear that a collapse of Evergrande could have serious repercussions for China’s economy and beyond. Experts are convinced that if the real estate company collapsed, the Chinese economy would lose a lot of its pace. The country’s economy is a key factor in the recovery of the global economy.

On the other hand, Liu Zhongrui, manager of the statistics department of the Chinese banking regulator CBIRC, said that Evergrande’s problems would not spread to the whole real estate sector as economic growth continued. However, the authorities in China are apparently currently trying to calm the financial and real estate industries.

More than $ 300 billion in debt

Evergrande is considered the most heavily indebted real estate company in the world. The company sits on a mountain of debt equivalent to more than $ 300 billion. Management urgently needs to raise funds to pay banks, suppliers and bondholders on time. The current payment only gives the group more time: In the coming weeks and months, further interest payments for bonds will be due

Until recently, it was uncertain whether Evergrande would still be serving dollar bonds at all. CEO Xu Jiayin initially focused on servicing bonds in the Chinese home market. Because many small savers there lent the company a lot of money for years. If this cannot be repaid, the Chinese authorities fear unrest.

Next deadline at the end of October

Now the chances are good that Evergrande will also make the next payment due by the end of October, according to the analyst Jeffrey Halley from broker Oanda. With the current interest payment for the dollar bond, Evergrande was initially only trying to gain time, explained another market participant. Investors on the stock exchanges reacted positively. But it is unclear how it will continue.

Evergrande had to restructure its debt, cited Reuters a lawyer who represents the interests of some bondholders. This difficult task is still ahead of the real estate company.

In total, Evergrande has allowed so-called coupon payments of approximately $ 280 million, due on September 23, 29 and October 11, to elapse on its dollar bonds. This set a grace period of 30 days in motion. In a few days, the financial markets will look to China one more time.

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