Bond investors fret as China Evergrande misses payment deadline

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Bond investors in Chinese property giant Evergrande’s dollar-denominated bonds have been left in the dark as an interest payment became overdue last night.


The most indebted property group in the world was due to pay a US$83.5mln coupon on its offshore bond by noon Friday Hong Kong time, according to Reuters.


Evergrande, which owes well over $300bn, has not made a statement on the repayment but has a 30-day grace period before it would be in default.


The company also has another US$47.5mln bond interest payment due next week.


Evergrande’s shares were trading over 12% lower in Hong Kong on Friday, wiping out most of the 17% gains made the previous day when it agreed to make payments on the coupon due for its onshore, Yuan bonds, of just under US$36mln.


Of its US-denominated debt, around US$7.4bn is estimated to be held by overseas investors, including the likes of Ashmore Group (LSE:ASHM) (LSE:ASHM), Credit Suisse (NYSE:CS.), Allianz and BlackRock.


Asian markets were mixed on Friday, with Hong Kong’s Hang Seng index 1.2% in the red and Shanghai’s benchmark down 0.8%. The Nikkei and Sensex were in positive territory.


Markets are troubled by where any liability might lie in the event that the offshore bond payments are not made.


Developed markets contagion?


While the developed markets property industries may see some short-term upheaval from the Evergrande crisis, property economist Andrew Burrell at Capital Economics, said he thinks the impact outside of China is “unlikely to be severe or lasting”.


He said Evergrande’s problems are “homegrown”. The booming construction sector has been the engine of Chinese economic growth in recent years but changing demographics make this “increasingly unsustainable”. This led to authorities introducing borrowing curbs last year to limit developer leverage, which left Evergrande struggling to meet obligations on its enormous liabilities.


“Conditions in developed markets have not mirrored this. There has not been a similar run-up in real estate activity and prices have been far less cyclical. And since the [global financial crisis], property development has been curtailed by tight regulation. While the post-COVID-19 housing bounce has raised some eyebrows, property loans do not pose a similar systemic risk to developed economy banks at present.”

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