Chinese Government Manages Controlled Defaults by Evergrande

Sept. 29, 2021 (EIRNS)—Chinese real estate developer Evergrande missed its second major interest payment deadline in two weeks today, defaulting on a $47.5 million bond payment due on a 2024 dollar bond held principally by international financial speculators, including BlackRock Inc., Ashmore Group and HSBC Holding. The default was widely expected, and Reuters reported that “investors were bracing for potential market turbulence ... [which could] reverberate around the world,” coming as it did on the heels of last week’s default on an $83.5 million payment.

Ahead of today’s missed payment deadline, Evergrande announced it will be selling a $1.5 billion stake in Shengjing Bank to a state-owned asset management firm. This de facto infusion of capital into Evergrande by the Chinese government is being channeled to protect domestic home buyers threatened by Evergrande’s problems, and not to the company’s international creditors, which are expected to take a major haircut in the reorganization process underway. Evergrande’s international dollar bonds were trading at 29 cents on the dollar, indicating that a haircut in the range of 70% is expected.

The British rating agency Fitch today downgraded Evergrande’s unsecured senior bonds, because “Evergrande is likely to have missed interest payment on its senior unsecured notes [today] and entered the consequent 30-day grace period before non-payment constitutes an event of default.”

Evergrande’s international creditors are reported to be considering their next step, the Wall Street Journal reported. “It could be difficult for Evergrande’s offshore bondholders to have their claims recognized by courts in mainland China, said several lawyers tracking the situation.”