China calls on Evergrande boss to pay firm’s debts with own wealth

China is trying to limit the fallout from Evergrande, the world's most indebted developer that's saddled with more than US$300 billion in liabilities. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China urged companies to make payments on their offshore bonds, and asked China Evergrande Group's billionaire founder Hui Ka Yan to tap his personal wealth to help solve the company's debt crisis.

The National Development and Reform Commission (NDRC), which oversees foreign debt issuance, called on companies to "optimize their foreign debt structure" to raise funds, and said it will continue to meet firms' "reasonable needs" for the rollover of foreign debt and repayment, according to a statement late on Tuesday (Oct 26) following a meeting with key industries.

The regulator urged companies to abide by "financial discipline and market rules", and said they should prepare for the redemption of principal and interest on overseas bonds. The statement didn't name the companies.

China has clamped down on the indebted real estate sector, making it difficult for developers to refinance as they face falling home prices and sales. Multiple developers have defaulted this month, although Evergrande made a coupon payment last week before a grace period expired. The focus now turns to the end of a grace period on another Evergrande dollar bond on Friday, with creditors bracing for an eventual debt restructuring that could rank among the largest ever in China.

Beijing's directive to the Evergrande chairman came after his company missed an initial Sept 23 deadline for a coupon payment on a dollar bond, said the sources. Local governments across China are monitoring Evergrande's bank accounts to ensure company cash is used to complete unfinished housing projects and not diverted to pay creditors, the sources said.

The move by the NDRC comes after concerns flared about the ability of lower-rated Chinese borrowers to roll over international borrowings following a surge in financing costs. Chinese junk-rated United States dollar bond yields recently hit the highest in a decade at about 20 per cent, which contributed to the country's developers making up nearly half the world's distressed dollar notes.

"It shows the government's attitude to rein in defaults of offshore dollar bonds," asking companies to make every effort to service their debt, said Ms Ting Meng, senior Asia credit strategist at ANZ Banking Group. Ms Meng expects "actual" actions to follow.

"This is not enough, as refinancing is very hard given such high yields and high redemptions next year."

China is trying to limit the fallout from Evergrande, the world's most indebted developer that is saddled with more than US$300 billion (S$404 billion) in liabilities. Creditors are still bracing for an eventual default and restructuring that could rank among the largest ever in China even after the developer made an unexpected coupon payment on a US$2 billion bond last week. Even after recent gains, Evergrande's dollar note maturing in March trades below 30 cents on the dollar.

Chinese borrowers have defaulted on about US$9 billion of offshore bonds this year, with the real estate industry accounting for a third of that amount. That has come as the authorities clamp down on excessive leverage in the real estate sector amid a crisis at Evergrande that has left many investors around the world on edge.

The surprise default on a US$205.7 million bond by Fantasia Holdings Group this month spurred a dramatic sell-off in the offshore market, with some investors taking it as a harbinger of a worsening liquidity crisis for China's heavily leveraged property firms. Sinic Holdings Group also defaulted last week.

Signs of stress in the real estate sector sharpened on Tuesday after Modern Land China failed to pay either the principal or interest on a US$250 million bond due on Monday, according to a Singapore stock exchange filing. The company is working with its legal counsel, Sidley Austin, and expects to engage independent financial advisers soon, the filing said. Fitch Ratings downgraded Modern Land to restricted default from C following the missed payment.

Join ST's Telegram channel and get the latest breaking news delivered to you.