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Evergrande to make small investors priority as debt deadline looms

Global markets have been on tenterhooks in recent weeks as looming payment obligations of Evergrande, which has a $305 billion mountain of debt

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Evergrande

Reuters  |  HONG KONG/SINGAPORE 

Evergrande

By Clare Jim, Anshuman Daga and Tom Westbrook

HONG KONG/SINGAPORE (Reuters) - China Group will make it a top priority to help retail investors redeem their investment products, its chairman said, as uncertainty looms over a bond interest payment the indebted property developer is due to make on Thursday.

Chairman Hui Ka Yan's statement at a late-night meeting on Wednesday came after the developer said it had resolved a coupon payment on a domestic bond, pushing the company's stock price to its biggest single-day percentage rise in a year.

Analysts said the moves underscored political pressure on Evergrande, whose liabilities run to 2% of China's gross domestic product, to contain the fallout from its credit crunch and protect mom-and-pop investors over professional creditors.

Global markets have been on tenterhooks in recent weeks as looming payment obligations of Evergrande, which has a $305 billion mountain of debt, triggered fears its difficulties could pose systemic risks to China's financial system.

The company, China's second-biggest property developer, has $83.5 million in dollar-bond interest payments due on Thursday on a $2 billion offshore bond and a $47.5 million dollar-bond interest payment due next week.

Both bonds would default if fails to settle the interest within 30 days of the scheduled payment dates.

A company spokesperson did not immediately respond to request for comment on its payment obligation due on Thursday.

Evergrande, which epitomised the borrow-to-build business model and was once China's top-selling developer, ran into trouble over the past few months as Beijing tightened rules in its property sector to rein back debt levels and speculation.

Investors worry that the rot could spread to creditors including banks in China and abroad, though analysts have been downplaying the risk that a collapse would result in a "Lehman moment", or a systemic liquidity crunch.

'SOCIAL STABILITY'

Without mentioning the offshore debt, Evergrande's chairman urged his executives to ensure the quality delivery of properties and redemption of wealth management products, which are typically held by millions of retail investors in China.

There is mounting pressure on the company to act as the frustration of homebuyers and retail investors who have sunk their savings into its properties and products grows.

"Assuming this situation goes the way of a debt restructuring ... we think the retail investor nature of the wealth management products would be prioritised for social stability," said Ezien Hoo, credit analyst at OCBC Bank.

Foreign investors, who hold paper issued by Evergrande's offshore entities, might find it harder to get paid as they had "lower bargaining power versus other lenders closer to the assets", he said.

Shares in rose nearly 18% on Thursday after it resolved the coupon payment for the onshore bond, though the stock is still down more than 80% this year. Shares in Evergrande Property Services rose nearly 8% and relief spread to mainland property stocks listed in Hong Kong.

Country Garden, China's largest developer, climbed 7%, Sunac China jumped 9% and Guangzhou R&F Properties ended 7.5% higher.

Oscar Choi, founder and chief investment officer at Oscar and Partners Capital Ltd, said Evergrande was wary of enflaming social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their losses.

Once those priorities had been met, Evergrande would talk to its other creditors, he said, adding: "Otherwise a few hundred thousand people will fight with the government."

CONTAGION RISKS

U.S. Federal Reserve Chair Jerome Powell said on Wednesday that Evergrande's problems seemed particular to China and that he did not see a parallel with the U.S. corporate sector.

Switzerland's central bank, however, warned on Thursday that while it was wrong to be alarmist, the issue should not be dismissed as a small, local problem.

Fitch Ratings said on Sept. 16 that it had cut its 2021 economic growth forecast for China to 8.1% from 8.4%, citing the impact of the slowdown in the country's property sector on domestic demand.

Underscoring the scramble to avoid contagion, Chinese Estates Holdings, Evergrande's second-biggest shareholder, said on Thursday it had sold $32 million of its stake and planned to sell the rest.

Some analysts say it could take weeks for investors to have any clarity about how the Evergrande situation will resolve.

"The company could restructure its debts but continue in operation, or it could liquidate," wrote Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. In either case, investors in the company's financial instruments would likely suffer some losses, he wrote.

"In the event of a liquidation, however, Chinese and global investors could decide that the contagion could spread beyond China," he said.

 

(Reporting by Clare Jim in Hong Kong, Karen Pierog in Chicago, Anshuman Daga in Singapore, Andrew Galbraith in Shanghai, Ira Iosebashvili in New York; Writing by Anne Marie Roantree and Sumeet Chatterjee; Editing by Stephen Coates and David Clarke)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Thu, September 23 2021. 15:35 IST
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