China Evergrande bonds fall sharply on default worries, onshore bond temporarily suspended

The world's most indebted developer has become one of the biggest financial worries in China.
The world's most indebted developer has become one of the biggest financial worries in China.PHOTO: REUTERS

SHANGHAI (REUTERS, BLOOMBERG) - Indebted China Evergrande Group's shares and bonds were under fresh pressure on Thursday (Sept 9) after media reports that the company would suspend interest payments due on loans to two banks later this month and also all payments to its wealth management products.

Investors are factoring in an increasing likelihood of a default. Regulators have warned that Evergrande's 1.97 trillion yuan (S$410 billion) of liabilities could spark broader risks to the country's financial system if not stabilised.

Shenzhen-traded January 2023 bond were halted from trading temporarily in the morning, after falling more than 20 per cent in early trade, the Shenzhen Stock Exchange said in a statement.

US dollar bonds due November 2024 dropped 0.8 cents to trade at 23.558 cents, while the Hong Kong-listed stock dropped over 10 per cent to HK$3.32, the lowest since July 8, 2015.

Financial information provider REDD reported on Wednesday that Evergrande informed two banks it will suspend the interest payment due Sept 21, pending further instruction about an extension plan.

Evergrande has also delayed payments to several trust firms, REDD said, and it might suspend all payment on its wealth management products starting Wednesday.

Evergrande declined to comment on the report.

The bond selloffs also followed a series of downgrades by rating agencies including Fitch, Moody's and China Chengxin International (CCXI) in recent days.

Fitch Ratings cut the ratings of Evergrande and two of its subsidiaries to "CC" on Wednesday, adding a default appears probable, due to tight liquidity, declining contracted sales, pressure to address delayed payments to suppliers and contractors, and limited progress on asset disposals.

Evergrande itself last week warned of default risks if its efforts to raise cash fall short. The company separately said on Friday its contracted sales in August, including those to suppliers and contractors to offset payments, dropped 26 per cent compared with a year ago.