China Evergrande investors relax despite default deadline – Community News
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China Evergrande investors relax despite default deadline

HONG KONG — For months, Beijing sat on the sidelines as a troubled real estate company called China Evergrande shocked global markets with its financial troubles.

Now the government is taking on a more hands-on role.

Evergrande, the world’s most indebted real estate developer, said officials from several state-backed institutions have joined a risk committee that will help the company restructure itself. The commission, led by Evergrande founder Xu Jiayin, will “play an important role in reducing and eliminating future risks,” the company said in a filing late Monday.

The formation of a committee of apparent government imprimatur reassured investors who had been concerned about the potential impact, in China and beyond, of a chaotic collapse of Evergrande. The vast real estate empire includes millions of apartments in hundreds of Chinese cities, but Evergrande also has more than $300 billion in liabilities it must repay — and perhaps even more off the books.

“It looks like the government will intervene somehow to prevent a major crisis,” said George Yu, an economist at Renmin University in Beijing. “But society as a whole should learn a lesson from this incident.”

It was not clear whether Evergrande made any payment to bondholders of an affiliate, Scenery Journey, that was owed on Monday. But its shares rose in trading in Hong Kong on Tuesday, as investors reacted to news of official support for the company and broader measures to support an ailing real estate sector. Investors also welcomed the Chinese government’s easing of credit restrictions on Monday amid signs of a broader economic slowdown.

Like other sprawling conglomerates that borrowed until they could no longer pay their bills, Evergrande’s future operations will now be advised in part by officials from Guangdong, the province where the company first began selling apartments to a young Chinese middle class in the late 90s.

Evergrande said last week it may no longer be able to meet its financial obligations. The unveiling took place against the background of a deteriorating real estate market and difficult business conditions for developers. At least 11 developers have defaulted on their bond payments this year.

Investors feared Evergrande could be next. The grace period for payments on two of its bonds worth more than a combined $82 million ended Monday. If the bondholders were not made full, it would mark the beginning of a formal bankruptcy, something the company narrowly avoided for several months.

Evergrande did not respond to a request for comment.

Another ailing real estate giant, Kaisa Group, faced possible bankruptcy on Tuesday. Bondholders sent it a proposal that would give it more time, according to Bloomberg. Kaisa did not respond to requests for comment.

Authorities have tried to curb the reckless lending of corporate giants by pledging not to intervene to bail out companies that can no longer pay their bills. Last year, officials turned their attention to property developers, one of China Inc.’s largest borrowers.

The central bank started by restricting bank loans to real estate companies and making access to new cash dependent on companies’ ability to pay off their debts. With their traditional financing channels drying up and the authorities under pressure to reduce their debt, many developers found themselves in a difficult position. A slowing property market has exacerbated matters and put pressure on the entire industry.

In recent weeks, property defaults have sparked bond market panic, pushing the cost of borrowing to record highs. Many developers have struggled to keep up their business, complete work on the apartments they’ve sold, and pay their employees and contractors. China Central Television, the state broadcaster, reported Monday that Kaisa had failed to pay some of its employees for months and was having trouble finishing a luxury project in Guangzhou that was due to be completed last year.

Evergrande’s call for help last week sparked a spate of comments from Chinese regulators assuring the market that the financial troubles would not spill over to the wider economy. The Communist Party’s Politburo also weighed in to say the government would help support the real estate market.

Evergrande’s new risk committee will include top officials from China Cinda Asset Management, Guangdong Holdings, Guangzhou Yuexiu Holding and Guosen Securities — state-owned or backed entities. Evergrande said on Friday it planned to “enter an active dialogue” with its foreign creditors.

One question now is whether investors in Evergrande’s US dollar bonds will be willing to consider a quick deal to roll over the company’s roughly $20 billion in unpaid bonds before restructuring begins, or whether they will choose to wait for the rest of the more than $300 billion in debt to be settled.

The Chinese authorities have made it clear that social stability is crucial, indicating that they can give priority to the home buyers, suppliers and contractors who are still waiting for payment from Evergrande. And the company is hot on the heels of some 1.6 million unfinished apartments that buyers have already paid for.

But officials advising the developer may also be concerned about the way foreign investors will be treated in the restructuring process, said Han Shen Lin, an assistant professor of practice in finance at NYU-Shanghai. Developers have become heavily dependent on access to international markets for funding. It is estimated that they will have to pay a total of about 17 billion dollars in the coming months.

“While addressing social disadvantages is a priority,” said Mr. Lin, “the way US dollar debt offshore investors are treated will be an important signal of future risk pricing in China.”

Keith Bradsher in Beijing contributed reporting.

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