According to an insider, the ailing Chinese real estate company Evergrande has transferred millions of funds to prevent an impending default. Like the person familiar with the matter to the news agency on Friday Reuters said the company reportedly deposited $ 83.5 million in coupon payments into an escrow account with Citibank. So Evergrande could settle upcoming payments for a dollar bond.
This Saturday, a grace period expires for a multi-million dollar interest payment that would have been due on September 23rd. The insider confirmed a report published on Friday in the state-run financial newspaper, The Securities Times, had appeared. Accordingly, Evergrande was able to pay off all bondholders before the end of the grace period on October 23.
Evergrande is considered the world’s most heavily indebted real estate company with a mountain of debt of around $ 300 billion. There is an urgent need to raise funds in order to be able to pay banks, suppliers and bondholders on time. The company is so large that some experts fear a “risk of contagion” for China’s economy and beyond. Further interest payments on bonds will be due in the coming weeks and months.
The news brought some relief to investors and regulators. The real estate company’s dollar bonds skyrocketed on Friday morning. Evergrande’s shares also gained about four percent. “This is a positive surprise,” said James Wong, portfolio manager at Gaoteng Global Asset Management Ltd, adding that many would have expected a default. Since the beginning of the year, however, Evergrande’s papers have lost around 80 percent of their value.
Corporations like Evergrande grew rapidly for a long time because real estate prices in China rose sharply and there was a construction boom. However, it was a thorn in Beijing’s side that the industry’s indebtedness continued to grow. Now the government is enforcing strict rules. Beijing has shown “three red lines” to corporations, making it difficult or impossible to take out new loans.
Last week the Chinese central bank announced that the risks for the financial system resulting from the financial distress of the group were “controllable”. It is therefore unlikely that the Evergrande crisis will spread to other areas. However, the central bank called on the banks to ensure a stable supply of credit for the country’s real estate companies.