Evergrande shares rise after reports that it had made interest payment before crucial deadline

Evergrande’s fall could trigger financial crisis in China and spill through into global markets

Stuti Mishra
Friday 22 October 2021 12:14
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Evergrande debt crisis: How likely is it that bondholders can recoup their investments?

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Shares of China’s highly-indebted property giant Evergrande saw recovery on Friday after the company reportedly managed to pull itself from the brink of default by paying interests owed to an offshore bond right before the deadline.

Evergrande, which has a debt of over $300bn (£217bn) and has been struggling to keep itself afloat, saw its stock prices rise by six per cent on the Hong Kong Stock Exchange on Friday. Its total obligations amount to two per cent of China’s GDP.

The shares bounced back from Thursday’s sharp fall after the company paid off its dues for a US dollar-dominated offshore bond, according to news agency Reuters, just before the grace period was about to get over on Saturday. The company wired funds for the $83.5m (£60m) dues on Friday. It will be given to the bondholders on Saturday, according to a person with knowledge of the matter.

On Thursday, the company’s shares took a hit soon after resuming trading following a 17-day halt. Its value went down by as much as 14 per cent during the day’s trading. Though it recovered marginally, the shares were still over 12 per cent lower at closing time.

The previous day, the company announced that its deal to sell stakes in its property services unit fell through because it could not agree on the terms offered by Hopson, a rival firm to which Evergrande also owes a debt.

The company missed the interest payment in September and had a grace period of 30 days, which ends on Saturday. Had the real estate giant missed the deadline, it would have plunged into formal default.

However, the company’s woes do not end here, as it has another grace period ending on a second offshore bond payment worth $47.5m (£34m) on 26 October, for another interest payment it missed in September.

The stock’s recovery on Friday may be short-term, but it came as a relief to shareholders that China’s second-largest developer is on track to meet its obligations.

Earlier the company also announced it has managed to settle payment on a domestic bond before the payment date. Its attempts to sell off assets has resulted in just one successful deal with a Chinese commercial bank it owed debts to.

The fears of Evergrande formally entering into a formal default have worried investors around the world as the company’s fall could trigger a financial crisis in China and spill through into the global markets.

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