China and the financial world are holding their breath. As the default threatens, the giant real estate developer announced on Wednesday morning that it had reached an agreement with bondholders on a small part of its debt.
In a press release sent to the Shenzhen Stock Exchange (southern China), the group said that one of its subsidiaries, Hengda Real Estate, had negotiated an interest repayment plan on a bond maturing in 2025.
According to the financial agency Bloomberg, Evergrande was to honor a maturity of 232 million yuan (30.5 million euros) of debt Thursday on this bond at 5.8% limited to the domestic bond market.
The real estate giant far from being out of business
The holders “who bought and hold these bonds” before the date of Wednesday “are entitled to the payment of interest”, indicated Evergrande, without specifying how much exactly it was going to pay to its creditors.
But the real estate giant is far from being off the hook given the total amount of its debt. The Shenzhen juggernaut admitted to facing “enormous pressure” last week, and warned that it may not be able to honor all of its commitments.
Other maturities are expected on Thursday on the international bond market and the group has not specified how it intends to pay interest on these bonds.
Towards a lull in the markets?
The announcement of the partial repayment “will help and we can hope that it will reduce the volatility and the fall of the markets a little,” said Gary Dugan, of the investment consultancy firm Global CIO Office in Singapore.
“But for confidence to return for good, the market would need to see the prospects for restructuring at Evergrande,” he told Bloomberg.
However, the communist regime did not specify whether it intended to help bail out the private group, of which 1.4 million homes would remain unfinished, to the chagrin of so many cheated owners.
Last week, dozens of them protested outside the group’s headquarters as well as elsewhere in the country. Creditors, employees and suppliers are also demanding to be paid by Evergrande, which increased investments until Beijing tightened borrowing rules last year.
The group’s chairman, billionaire Xu Jiayin, told his staff that Evergrande “will soon emerge from its darkest days,” state media reported on Tuesday.
Once the richest man in China, Xu Jiayin assured that construction sites would resume completely and that the group would provide “a response to buyers, investors, partners and financial institutions”. He did not provide further details.
A Lehman Brothers scenario dismissed by the OECD
The announcement of interest payments did not really reassure the markets. If the Shanghai Stock Exchange closed up 0.4%, that of Shenzhen ended down 0.57% on Wednesday, after a four-day hiatus due to public holidays. The Hong Kong Stock Exchange was in turn closed on Wednesday.
The OECD for its part ruled out on Tuesday the risk of a Lehman Brothers scenario. “The connection between the Chinese financial markets and the others is less great than what we see in the Western world”, declared the chief economist of the international organization, Laurence Boone.
“The impact would be relatively limited, except for certain companies”, she added, estimating that “the Chinese authorities have the budgetary and monetary capacity to cushion the shock”.
Laurence Boone, however, acknowledged that a possible decline in Chinese growth would have an impact on the global level.