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Evergrande News: Will Chinese real-estate giant avoid default?

  • China's Evergrande is due to make an offshore bond coupon payment.
  • A failure to pay the overdue $148 million bond coupon will result in a formal default. 
  • Heightened concerns over a spillover to other sectors could weigh on sentiment.

China's Evergrande Group has to pay another overdue bond coupon payment, this time worth $148 million, to avoid a formal default on Wednesday. Heightened fears over the liquidity crisis in the Chinese real-estate sector spilling over to other sectors could trigger a flight to safety if Evergrande defaults.

Back in October, the People's Bank of China (PBOC) noted that the impact of Evergrande's debt problems on the banking system was controllable and reassured that it would protect the rights and interests of home buyers. However, there was no word from the company regarding its upcoming overdue payment and investors grow concerned about its ability to avoid a default. 

Citing two sources with the knowledge of the matter, Reuters reported that some bond holders had not received coupon payments at the end of the Asian session on Wednesday. 

Last week, Chinese property developer Kaisa Group Holdings Ltd announced that it missed a payment on a wealth management product, reminding investors of the dreadful condition the sector is in.

On a positive note, Evergrande reportedly sold 530 million shares of its stake in Hong Kong-based tech company HengTen in a series of sales since November 4, raising more than $140 million in the process. 

The data from China revealed that the Producer Price Index (PPI) jumped to 13.5% on a yearly basis in October, the highest reading in 26 years, from 10.7% in September. This print revived worries over the world's second-biggest economy going into stagflation by suggesting that inflation could continue to push higher with producers passing the price increases to consumers.

Market implications

The Shanghai Composite Index (SSEC), which was down more than 1% at one point, lost 0.4% to close at 3,492 points.

According to a report published by the Securities Times on Wednesday, several real estate companies unveiled plans to China's inter-bank bond market regulator to issue debt in the inter-bank market. This development triggered a rebound and the Real Estate Index registered its largest one-day increase since October by rising 5%.

Evergrande Group (3333 HK) (EGRNF) Stock News: Has Evergrande Group defaulted?

Meanwhile, American investors seem to have adopted a cautious stance with the S&P futures falling 0.15% ahead of the opening bell. 

In case risk-off flows start to dominate the financial markets with Evergrande missing its payment, Wall Street's main indexes could suffer heavy losses and the flight-to-safety could provide a boost to the greenback. Risk-sensitive currencies, such as the AUD and the NZD, are likely to face heavy selling pressure if the mood sours. 

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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