Evergrande pays interest in the Cesarini area via Citigroup on the $ 83.5 million offshore bond which expired and was not honored on September 23, just in time to avoid the default that would have started on October 23, 30 days after non-payment. Overburdened with over $ 300 billion in debt, Evergrande struggles to survive. The news released by the Securities Times has sparked volatility in international markets. The showdown in Chinese real estate is, however, near. The authorities are not backing down from the credit crunch on real estate.
In good standing at the last minute
Evergrande paid $ 83.5 million in late payment to foreign bond holders. This was reported by the Chinese newspaper Securities Times, according to which the Chinese giant paid the money into a Citigroup account for the payment of accrued and unpaid interest by 23 September. The Evergrande Group’s struggle to reduce debt worth over $ 300 billion keeps markets in suspense, raising fears that a default could trigger a global financial crisis. Evergrande has not made the payments due from the end of September onwards. On Saturday 23 October the grace period of 30 days would have expired, before the declaration of technical default.
The volatility effect on the markets
Evergrande’s failure to pay the coupon by the September 23 deadline sparked volatility in international markets and accelerated the showdown on the health of China’s real estate sector, under pressure from the government to deleverage. The CSI300 real estate index closed the morning session with 2.4%, after a jump of 6.5%. The counterpart index on the Hong Kong stock exchange gained 3.9%, with Evergrande shares rising up to 7.8%.
Already on Thursday, October 21, the comments of Pan Gongsheng and Liu He, respectively deputy governor and head of the Financial Stability Group, had thrown water on the fire by defining the Evergrande risk under control, in the wake of the reassuring statements of the Governtaore Yi gang (“Evergrande is controllable »). With relief from the securities of the real estate sector. On the other hand, the trend in energy is bad, as coal futures extended losses after Beijing signaled it would intervene to cool the rising prices that contributed to the country’s electricity shortage.
But the crackdown doesn’t stop
In the short term, the interest repayment should provide a boost to Chinese risk assets, including the yuan and Chinese equities, but Evergrande’s default risk has probably only been postponed for some time yet.