Evergrande gets some reprieve from creditors amid default worries

Evergrande is teetering on the brink of bankruptcy after years of rapid growth and a buying spree.
Evergrande is teetering on the brink of bankruptcy after years of rapid growth and a buying spree.PHOTO: REUTERS

SHANGHAI (REUTERS, BLOOMBERG) - Bonds of heavily indebted developer China Evergrande Group staged a late rally on Thursday (Sept 9) on news that some creditors had agreed to loan payment extensions.

One source told Reuters that Evergrande has requested an extension of at least three months on a trust loan interest payment to Citic Trust, one of its major trust creditors, which was due in late August, citing tight liquidity.

Citic has agreed to the extension, the source with direct knowledge of the matter said.

The source added that similar delayed interest payments have been seen across the trust sector.

News of the extensions came after a report on Wednesday said Evergrande would suspend interest payments due on loans to two banks later this month, as well as payments to its wealth management products.

That report triggered steep falls in the company's onshore bonds and shares on Thursday.

Evergrande declined to comment.

Regulators have warned that Evergrande's 1.97 trillion yuan (S$410 billion) of liabilities could spark broader risks to China's financial system if not stabilised. The company, China's second-largest property developer, said last September its liabilities involve more than 128 banks and over 121 non-banking institutions.

The Shenzhen stock exchange temporarily halted trading in two Evergrande exchange-traded bonds on Thursday after their prices sank more than 20 per cent. After resuming trade, Evergrande's 6.98 per cent January 2023 bond fell more than 30 per cent, triggering a second trading freeze.

They are now trading at roughly a third of their face value.

Evergrande's dollar bonds due June 2025 dropped about half a cent to 24.709, but later turned more than two cents higher as reports emerged of the deadline extensions.

"It might end up being positive news as it might draw a line in the sand", said Mr Siddharth Dahiya, head of emerging markets corporate debt at Abrdn, formerly Standard Life Aberdeen. "But we don't know, there is very little clarity... The first reaction (from the markets) is positive though."

Its Hong Kong-listed stock dropped more than 10 per cent to HK$3.32, its lowest since July 8, 2015, before trimming losses to end down 4.3 per cent.

Evergrande shares have tumbled more than 76 per cent this year.

Financial information provider Redd reported on Wednesday, citing sources briefed by banks, that Evergrande had told two banks it will suspend interest payments due on loans to the banks on Sept 21, pending further instructions 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 on Wednesday.

Sources say that the extensions came about as China's Financial Stability and Development Committee, the nation's top financial regulator, signed off on an Evergrande proposal to renegotiate payment deadlines with banks and other creditors last month, after the property giant missed interest and principal payments on some loans.

Recent days have seen a series of downgrades by rating agencies including Fitch, Moody's and China Chengxin International.