Evergrande debt troubles seem particular to China: US Fed chief

Workers inside the construction site of a project developed by China Evergrande Group in Beijing on Sept 22, 2021.
Workers inside the construction site of a project developed by China Evergrande Group in Beijing on Sept 22, 2021.PHOTO: REUTERS

WASHINGTON (REUTERS, BLOOMBERG) - United States Federal Reserve chair Jerome Powell said on Wednesday (Sept 22) that the debt problems of property developer Evergrande seem particular to China and that he did not see a parallel with the US corporate sector.

A potential default by Evergrande, Asia's biggest junk bond issuer, drove a steep sell-off on Wall Street and widened spreads on US high-yield bonds on Monday, although markets have steadied since then.

"In terms of the implications for us, there's not a lot of direct United States exposure. The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing," Mr Powell told reporters after the Fed's policy meeting. "But I wouldn't draw a parallel to the United States corporate sector."

He added that with the onset of the coronavirus pandemic last year, the Fed was concerned about a wave of defaults by highly leveraged companies, noting that did not materialise to a significant extent because of the US Cares Act and action by the central bank. Currently, corporate default rates are "very, very low", he said.

As for Evergrande, Mr Powell said China has very high debt for an emerging market economy and that its government put new strictures in place for highly leveraged companies.

Evergrande on Wednesday said it agreed to settle interest payments worth 232 million yuan (S$48.59 million) on a domestic bond, while the Chinese central bank injected cash into the banking system, temporarily soothing investors’ fears of imminent contagion that had pressured equities and other riskier assets at the start of the week.

But the developer also has a bigger interest payment worth US$83 million (S$112.3 million) due on Thursday on a US dollar bond.

Billionaire Hui Ka Yan’s developer is widely seen as headed toward one of China’s largest-ever debt restructurings, though the company and Communist Party leaders have so far given few indications of how they plan to resolve its liquidity crisis.