China Evergrande's debt deadline lapses; Kaisa Group adds to woes

Some offshore bondholders of China Evergrande Group did not receive coupon payments by the end of a 30-day grace period, five people with knowledge of the matter said, pushing the cash-strapped property developer closer to a formal default.

Failure by Evergrande to make $82.5 million in interest payments due last month would trigger cross-default on its roughly $19 billion of international bonds and put the developer at risk of becoming China’s biggest defaulter.

With more than 1,300 real estate projects, Evergrande was once China's top property developer. With $300 billion of liabilities, it is now at the heart of a property crisis in China this year.

Adding to the liquidity crisis in China’s once bubbling property market, smaller peer Kaisa Group Holdings was also unlikely to meet its $400 million offshore debt deadline on Tuesday, said a source with direct knowledge of the matter.

Non-payment by Kaisa Group would push the 6.5 per ent bond of the company, China's largest holder of offshore debt among developers after Evergrande, into technical default, triggering cross defaults on its offshore bonds totaling nearly $12 billion.

The government has repeatedly said Evergrande’s problems can be contained. Moves to boost liquidity in the banking sector and the firm's plans to restructure its overseas debt have helped reassure global investors.

Kenny Ng, a strategist at Everbright Sun Hung Kai Securities, said that investors had expected the Evergrande non-payment. “…investors are watching the development of Evergrande, including whether it is heading for debt restructuring or its creditor repayment plan.”

However, Evergrande has not issued any communication to bondholders about the missed payment, one of the sources said.

Rating agency S&P said the $260-million repayment demand showed Evergrande's liquidity remained “extremely weak”, with a default looking inevitable especially given maturities totaling $3.5 billion in March and April.

State involvement and hope of managed debt restructuring helped lift Evergrande’s stock as much as 8.3 per cent a day after it dived 20 per cent to a record closing low. Still, it ended only 1.1 per cent higher on Tuesday, while its bonds continued to trade at distressed levels.