Evergrande staves off default, pays overdue dollar bond interest

Next interest payment deadline comes due in a week's time

China Evergrande Group pulled back from the brink of default by paying a bond coupon before Saturday’s deadline, giving the property giant at least another week to come to grips with a debt crisis that has rattled investor confidence in the world’s second-largest economy.

The $83.5 million payment to international bondholders surprised some China watchers who had expected Evergrande to prioritise local creditors, suppliers and disgruntled homebuyers — many of whom are waiting for the company to make good on overdue obligations.

While the news helped fuel the biggest weekly rally in Chinese junk bonds since 2012, Evergrande creditors are still bracing for an eventual debt restructuring that could rank among the largest-ever in China. The company’s 8.25 per cent bond due March 2022 is priced at just 26 cents on the dollar even after rallying on Friday, a sign investors expect deep haircuts. Evergrande’s coupon payment, which came at the tail end of a 30-day grace period, marked the latest twist in a saga that has roiled China’s $860 billion offshore credit market and cast a pall over a real estate sector that accounts for about a quarter of economic output. Senior Chinese policy makers have tried to reassure investors in recent days that risks from Evergrande are contained, even as they signal a reluctance to bail the company out.

“The payment looks like an attempt to kick the can down the road,” said Wu Qiong, executive director at BOC International Holdings. “Nevertheless, it’s positive and buys the time Evergrande needs for asset sales, strengthening the base-line case of an orderly restructuring.”

With more than $300 billion in liabilities, billionaire Hui Ka Yan’s developer has become one of the biggest casualties of Chinese President Xi Jinping’s years-long effort to wring the excesses out of the country’s debt-laden real estate sector. The question looming over global markets is whether Xi can tackle the problem — and pull off a sweeping campaign to bring “common prosperity” to China — without derailing the economy’s fragile recovery from the pandemic.