The central unit of China Evergrande Group (333H.K. H.K.) announced on Wednesday that it would make a coupon payment on its domestic bonds on September 23, providing some relief to nervous markets that had been on edge over fears that a default by China's No. 2 developer could have global ramifications.
Hengda Real Estate Group announced in a statement that the coupon payment on its 5.8% September 2025 bond, which is traded in Shenzhen, will be made on time on September 23.
The news comes as Evergrande, once the country's top-selling developer, approaches a significant deadline for a dollar bond interest payment, causing financial markets to tremble even as investors and analysts downplayed the risk of the company's problems. Becoming the country's "Lehman moment."
According to Refinitiv data, Hengda Real Estate's coupon payment totals 232 million yuan ($35.88 million).
"We're still trying to figure out what this payment means for the other bonds," said a source familiar with the situation who declined to be identified because they are not authorized to speak to the media. "I imagine they'd want to stabilize the market and make other coupon payments, given the close scrutiny," said another source familiar with the situation who declined to be identified because they are not authorized to speak to the media.
Safe-haven assets like the yen aU.S. U.S. Treasuries fell, whiU.S. U.S. stock futures, the yuan, and the risk-sensitive Australian dollar surged.
Evergrande will pay its onshore bond on time, but the developer hasn't said whether it would be able to pay the $83.5 million in interest due on its March 2022 bond on Thursday. Another $47.5 million payment for March 2024 notes is due on September 29.
If Evergrande fails to pay the interest within 30 days of the due dates, both bonds will default.
Since September 16, when Hengda Real Estate requested a one-day suspension of trading in Evergrande's onshore exchange-traded bonds, trading has been halted. While trading technically restarted on September 17, it is now only done through negotiated transactions to reduce volatility.
While fears of a dramatic collapse roiled markets on Monday, U.S. equities were flat on Tuesday, while Chinese stocks dipped in early trade following a two-day public holiday. However, China's property index has regained its losses and is now up more than 3%, while banking equities are down approximately 3%.
Fears of contagion have kept financial markets on pins and needles. Evergrande is so deeply intertwined with China's broader economy - from retail investors to infrastructure-related firms that serve as a barometer for global commodities demand - that fears of contagion have kept financial markets on pins and needles.
In a research note released on Tuesday, analysts at New York-based Bespoke said, "There's been a fair bit of concern about the possibility of contagion," "But so far that concern isn't showing up in parts of the credit markets that have served well as red flags for broader credit crunches in the past."
Bloomberg reported on Tuesday that Evergrande skipped interest payments due Monday to at least two of its top bank creditors, citing people familiar with the situation. According to Bloomberg, the missed payments were predicted because China's housing government stated that the company would not pay on time.
As investors and policymakers worldwide tried to assess the potential consequences, Securities and Exchange Commission (SEC) Chair Gary Gensler said tU.S. The U.S. market is better positioned to absorb a possible global shock from a significant company default than before the financial crisis of 2007-2009.
When Fed Chair Jerome Powell speaks after the Fed's two-day meeting, which ends at 2 p. E.T. E.T. on Wednesday, he will almost certainly be asked about the Evergrande repercussions (1800 GMT).
Despite the impending default, some funds have recently increased their holdings. According to Morningstar data and a blog post, fund giant BlackRock and investment banks HSBC and UBS were the primary buyers of Evergrande's debt.
UBS Asset Management and Amundi, Europe's largest asset manager, are among the bondholders.
Evergrande will need to restructure the bonds in any default scenario, but analysts estimate a low recovery ratio for investors. Evergrande is teetering between a messy implosion, a planned collapse, and the less likely chance of a bailout by Beijing.
S&P Global Ratings said on Monday that it believes the Chinese government will only intervene if a wide-ranging contagion threatens the economy's fundamental stability.
"I would characterise Evergrande as a telegraphed and controlled detonation," said Samy Muaddi, portfolio manager of the T. Rowe Price Emerging Markets Bond fund, which does not own shares in the firm.
In a research note, BNP Paribas calculated that bank loans account for less than $50 billion of Evergrande's $300 billion in outstanding debt, implying that the Chinese banking sector will be able to absorb future bad defaults.
Citigroup IncC.N.C.N) subsidiaries act as trustee and paying agent for a China Evergrande bond that matures in March 2022 and has an interest payment due on Thursday for $83.5 million.
"We do not have any direct lending exposure to Evergrande; our indirect exposure through counterparty credit risk is small and with no single significant concentration," said Citigroup representative Danielle Romero-Apsilos in an email on Tuesday. She wouldn't know anything about Evergrande's upcoming payments.
Evergrande's Hong Kong-listed shares plunged as much as 7% on Tuesday, after falling 10% the day before, on fears that the company's $305 billion in debt would cause massive losses in China's financial system if it collapsed. The Hong Kong stock exchange (.HSI) was closed for a holiday on Wednesday.