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China Evergrande Wants 6-Month Delay on Yuan Bond Payments

Group will seek a six-month delay for coupon payments on a 4.5-billion-yuan ($157m) bond in a meeting with holders this weekend. Trading in Evergrande bonds will be halted from Jan 6.

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Evergrande
Ocean Flower Island off Danzhou on Hainan Island was partly designed by Evergrande founder Hui Ka Yan, inspired by the palm-shaped islands in Dubai. Photo: AFP.

 

China Evergrande Group will seek a six-month delay in the redemption and coupon payments of a 4.5-billion-yuan ($157 million) bond in a meeting with bondholders this weekend, underscoring the pressure on the debt-laden property developer.

Evergrande is struggling to repay more than $300 billion in liabilities, including nearly $20 billion of offshore bonds deemed in cross-default by ratings agencies last month after it missed payments.

The delay is being sought due to the “current operational status” of the issuer, Hengda, the flagship property arm of Evergrande, said in a statement on Wednesday. It didn’t provide any further details on why the delay was sought.

The online meeting with the yuan bondholders will vote on a few proposals from January 7-10.

Evergrande is seeking to defer redemption and coupon payments of Hengda Real Estate Group’s 4.5 billion yuan 6.98% January 2023 bond to July 8 from January 8, which gives bondholders the option to sell bonds back to the issuer this weekend.

Trading in the bonds will be halted from Thursday January 6 ahead of the meeting with bondholders, Hengda said.

Evergrande, the most indebted developer in the world, has not yet missed any bond payments onshore, which are more senior than the offshore debt. The firm failed to make $82.5 million in offshore interest payments at the end of a month-long grace period early last month.

 

Silence on Offshore Bonds

The developer’s publicly announced meeting with the onshore bondholders is in sharp contrast to the silence it continues to maintain about the status of its offshore credit since missing payment on its dollar coupons for the first time in September.

In another resolution to be passed during the online meeting, Hengda must promise to meet its debt obligation, and it will have to formulate a reasonable repayment plan as soon as it expects a failure to make a payment on time, according to the statement.

Chinese authorities have repeatedly reassured markets that Evergrande’s woes can be contained, and stressed that paying workers’ wages and delivering homes to buyers are priorities for developers in order to maintain social stability.

“A postponement is expected,” said a holder of the bonds in question on condition of anonymity. “Given the company is under pressure to prioritize wages …and apartments.”

Evergrande reiterated in a filing on Tuesday it would continue to actively maintain communication with creditors, strive to resolve risks and safeguard the legitimate rights and interests of all parties.

The developer set up a risk management committee led by senior officials from state companies in December to study potential restructuring plans.

Evergrande shares listed in Hong Kong traded down 2.5% on Wednesday as of 0552 GMT, versus a 1.2% drop in the broader market.

The stock, which resumed trading on Tuesday, is down about 90% over the past year.

 

Demolition Order

Evergrande shares were in Hong Kong on Monday after Chinese media reported that the indebted property developer would be forced to demolish a residential development in the southern province of Hainan.

Evergrande said it would abide by a municipal government instruction to demolish 39 structures on Ocean Flower Island, one of its flagship property projects in the semitropical island province for breaching building approval procedures.

The company has been at the centre of a crisis in the country for months. Evergrande missed a series of bond payments from September but had previously transferred the money owed before the 30-day grace periods ended.

Evergrande was formally declared to have defaulted on its debts in December by rating agency Fitch after it failed to transfer funds due at the end of one such grace period.

“The immediate fallout from the formal default of Evergrande has been very limited so far,” said Derek Halpenny, head of research at MUFG Bank.

“The negative news on Evergrande and the probability of [its collapse] have been high for some time and hence exposures have been reduced over time,” he added.

 

  • Reuters with reporting by George Russell and additional edits by Jim Pollard

 

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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