The main unit of Evergrande, China’s real estate giant, told the market on Wednesday 22 that it had negotiated an agreement with bondholders to settle interest payments on a domestic bond, which helped to calm down fears of an imminent default that could trigger a crisis in the country.
Negotiation prevents one of the lack of payment that were about to happen and can signal a bigger deal; Communist Party may nationalize company, says website
As the country’s financial markets reopened and stabilized, China’s central bank poured 90 billion yuan (about 14 billion dollars) into the banking system as a show of support.
According to the specialized website Asia Markets, the Communist Party of China may take over Evergrande, in a nationalization to prevent a crash that could cause huge losses to the market and the local economy.
Evergrande, with debt of over $300 billion, is so intertwined with different sectors of China’s economy — from retail investors to infrastructure companies that measure demand for commodities — that its fate and fears of contagion have kept the global stock and bond markets on hold.
Hengda Real Estate Group announced in a statement that the coupon payment on its 5.8% Shenzhen bond due in September 2025 will be paid on Thursday, September 23, and that the bond “has already been addressed through private discussions.” It did not disclose any other information, and it was unclear whether the talks indicated any improvement in Evergrande’s financial situation or movement toward restructuring.
The company is expected to pay 232 million yuan (about $36 million) in interest on the bond by tomorrow.
Evergrande made no mention of a bond interest payment of $83.5 million due tomorrow, or a $47.5 million payment due the following week.
But Hengda’s announcement seemed to stabilize market jitters and S&P 500 futures rallied. Evergrande shares soared around 40% on the Frankfurt Stock Exchange, as in Hong Kong, where they are listed, they were not traded due to a holiday.
“We are still trying to understand what this payment means for other titles,” said a source familiar with the situation, who declined to be identified because he was not authorized to speak to the media.
“However, given the attention, I believe they’d prefer to keep the market stable and make other coupon payments.”
Evergrande, which epitomized the construction loan business model and was once the top-selling developer in China.