Evergrande China nears interest payment deadline

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The China Ever Grande logo will be seen outside the China Ever Grande Center Building in Hong Kong, China on September 23, 2021.Reuters / Tyrone Shiu

September 23, 2021

(Corrected to add the deleted word “important” to quote Casonova in Union Bancaire Privée)

Hong Kong (Reuters) – The Evergrande group has agreed to settle interest payments on domestic bonds, and the central bank has injected liquidity into the banking system to mitigate the threat of an imminent pass-through from indebted real estate developers. ..

CARLOS CASANOVA, Senior Economist for Asia at Union Bancaire Privie in Hong Kong

“In my opinion, we are approaching an agreement with the government on how to proceed with this controlled restructuring.

“Wealth management products are important for two reasons. Of course, because it is a gray area, there is no visibility on the level of risk in this area, but more importantly, it has led to considerable social unrest. Over the past few months, we have seen protesters flock to the Evergrande headquarters over unpaid wealth management products.

“Therefore, sending a message that wealth management products are guaranteed profits is by no means a government goal, but allowing Chinese retail investors to get their money back and homebuyers to deliver their homes. is not., Important from the point of view of social stability.

“So in my opinion they are getting closer to a consensus on how to handle the situation.”

EZIEN HOO, Credit Analyst at OCBC Bank in Singapore

“I think there are two parts to this: one is the nature of the investor and the other is the distance between the investor and the asset.

“Assuming this situation is on the way to debt restructuring… we believe that the nature of individual investors in wealth management products (WMP) is a priority for the stability of the company.

“This is especially true given that we understand that the media has reported that WMP’s investors are also made up of company employees. In our opinion, this is the actual legal status of WMP. However. The exact terms of these products are still unknown (for example, whether these products are fully guaranteed by Evergande development projects). In the consolidated audited finances of the company, WMP There was not much disclosure about this.

“For dollar-denominated bonds (probably those invested primarily by foreign bondholders), dollar bonds are issued by offshore entities far from assets in China and are subordinated to land lenders. Being away from the asset means you have to negotiate less than other lenders who are close to the asset, especially those who charge directly on the asset.

“Other than that, many dollar bond holders can be thought of as institutional investors and exchange traded funds managed by sophisticated investors. At least a few months now.

WEI-LIANG CHANG, Macro Strategist at DBS Bank, Singapore

“Wealth management products are sold to individual investors, which can put political pressure on companies to ensure a fair settlement, while professional bond investors have done their due diligence. As expected, we did not receive any special treatment.

“Creditors’ restructuring priorities must not be affected and depend on legal provisions regarding fixed income products and heritage commodities. “

BERND HARTMANN, head office CIO office de boutique private bank VP Bank

“Chinese political leaders may be aware of the gravity of the situation. The goal may be to dissolve Evergrande. Evergrande is already selling a good part of it. As such, the government is continuing on the path already chosen of dismantling the monopoly structure in the real estate market.

“We assume that the Chinese leadership will step in, but attention will be focused on the exact form it will take. The authorities will look to other sectors by dismantling Evergrande and freeing up liquidity. At the same time, Beijing could try to protect private property buyers who have already paid off their apartments and paid off their mortgages, but are waiting to be completed. Therefore, the government has the potential to ensure the realization of real estate projects.

“The sale to the private sector has already failed. The intervention is likely to take place through the Guangdong provincial government rather than the central government. Therefore, the greatest damage will be to the creditors.

“The main impact is a long-term and severe decline in real estate prices and sales. It should be avoided. In the short term, China could deviate from the current policy of cooling the housing market by tightening lending. There is sex. “

Longchen, partner of Plenum, the independent research platform in Beijing

“China has experienced notable bank failures and corporate failures over the past three years. Evergrande’s financial risk does not appear to be much greater than that of bankruptcy or HNA’s failure. Evergrande dollar bonds are trading below 30c, so it’s no surprise that defaults do occur …

“The number one job is to build an apartment. The government has several options to achieve this. Equally important is preventing the collapse of national real estate, and it is now too hawkish. We need a change in policy.

“No one is interested in the Evergrande bailout, but no one wants a crisis. By the time Evergrande collapses, Beijing will be easier to relax its policies. It’s more of an “all you need” moment than a “Lehman moment”. The market will feel more pain before that, but not after that. ”

($ 1 = 0.1547 Chinese RMB)

(Reported by Andrew Galbraith, Tom Westbrook, Anshuman Daga, Clare Jim, Cheng Leng, edited by Christopher Cushing)


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