Evergrande offshore investors face ‘large losses’ after second payment miss

Evergrande has nearly US$20 billion in offshore debt. PHOTO: REUTERS

SHANGHAI (REUTERS) - China Evergrande Group missed paying bond interest due on Wednesday (Sept 29), two bondholders said, its second unpaid offshore debt payment in a week, although the cash-strapped company is scrambling to meet its obligations in its home market.

The company, reeling under a debt pile of US$305 billion ($415 billion), was due on Wednesday to make a US$47.5 million bond interest payment on its 9.5 per cent March 2024 dollar bond, after having missed US$83.5 million in coupon payments last Thursday.

The developer's silence on its offshore payment obligations has, however, left global investors wondering if they will have to swallow large losses when 30-day grace periods end for coupons that were due on Sept 23 and Sept 29.

Once China's top-selling developer, Evergrande is now expected to be one of the largest-ever restructurings in the country. It has been prioritising its onshore liabilities amid concerns about its troubles triggering social unrest.

"I can't see there being much willingness to give a fairer outcome to offshore bondholders rather than onshore banks, let alone house buyers and people who have lent onshore through the personal loan structures," said Alexander Aitken, a partner at Herbert Smith Freehills in Hong Kong.

"Of course legally there is also structural subordination from being offshore, which means lenders to Evergrande's onshore subsidiaries get paid before lenders to the parent company or any offshore debt issuer."

"Regardless of how the debt is restructured, Evergrande shareholders and investors in offshore, USD-denominated corporate bonds will suffer large losses," said Jing Sima, chief China strategist at BCA Research in a note.

Construction resumption

Beijing is unlikely to intervene directly to resolve Evergrande's crisis in the form of a bailout, but analysts say it is wary of a messy collapse that could fuel unrest by local investors, suppliers and homebuyers.

Authorities have in recent days prodded government-owned firms and state-backed property developers to purchase some Evergrande assets to reduce such risks.

Some instant messaging groups used by people owed money by Evergrande to organise protests and discuss claims have been blocked on Tencent Holdings' WeChat platform, group members said on Wednesday.

Separately, Evergrande's Pearl River Delta business said in a WeChat post on Tuesday that nearly 20 developments in the area have resumed construction. The post showed construction photos of various sites, and said that work resumption had accelerated since Evergrande vowed at the beginning of the month to deliver homes to buyers.

Its main onshore unit Hengda Real Estate Group announced a resolution of an onshore bond coupon payment on Sept 23 through "private negotiations".

Evergrande's shares opened sharply higher on Thursday, rising as much as 5.21 per cent before reversing course to slump as much as 7.17 per cent. The stock ended down 3.91 per cent.

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