Financials will feel the headline volatility from Evergrande here in Canada: Fixed income expert
China Evergrande Group’s unusual silence about a dollar-bond interest payment that was due Thursday has put a focus on what might happen during a 30-day grace period.
The world’s most indebted developer has given no signs of having met the US$83.5 million coupon payment, which has the grace period before any default could be declared.
Some Chinese companies have used such grace periods in the past to make interest payments: Shandong Ruyi Technology Group Co. last year, for example, and Qinghai Provincial Investment Group Co. in 2019. Several years ago, Glorious Property Holdings Ltd. made multiple interest payments during grace periods, including at least once on the final day.
Such precedents illuminate the most clearcut way to avert default. While China has encouraged the market to price risk more accurately, authorities must strike a balance between fighting moral hazard and preventing broader contagion after corporate debt failures surged to a record this year.
Debt deals could offer another route. In December 2019, holders of a 2 billion yuan (US$310 million) maturing bond from Peking University Founder Group Corp. agreed to a two-month extension during that local note’s grace period. In the end, the firm didn’t pay by the extended date as the conglomerate was put under a court-led debt restructuring. Founder’s revamp plan received approval this past July.
Evergrande’s grace period gives it additional time to raise cash, after saying last week it had made “no material progress” in selling stakes in its electric-vehicle and property-management units. Regulators told company representatives in a recent meeting that Evergrande should communicate proactively with bondholders to avoid a default, according to a person familiar with the matter.