The Hong Kong stockmarket was closed on Wednesday, which helped keep the pressure off struggling Chinese property group Evergrande Group ahead of what could be a decisive day today with a big interest payment due on a foreign bond.
The market was closed for National Day, meaning external pressure on Evergrande’s share price was off and won’t return until today.
Reuters and other media groups reported yesterday that Evergrande’s main business main unit said it would make a coupon payment on its domestic bonds today.
Hengda Real Estate Group said in a statement it would make the coupon payment on its Shenzhen-traded 5.8% September 2025 bond on time on September 23.
Hengda Real Estate’s coupon payment totals 232 million yuan ($US35.88 million), according to data from Refinitiv (formerly part of Reuters).
The news saw US stock futures, the yuan and the risk-sensitive Australian dollar (it is seen as a proxy for external investors wanting exposure to or against the Chinese economy) rose, while safe-haven assets such as the yen and US Treasuries yields edged up a touch.
It also pushed the ASX higher at one stage before losing ground towards the end to close up 23 points, against the peak gain for the session of more than 60 points.
Mainland Chinese markets both restarted trading after the Mid-Autumn holiday and Shanghai and Shenzhen both spent part of the day in the red while the CSI 300, which contains the top stocks from both markets fell more than 1% at one stage, but recovered to be down 0.7%.
The improvement came after the news of the planned payment later today, as some market cynics suggested was always intended to prevent a repeat of Hong Kong’s sell-off on Monday.
But the developer did not say whether it will be able to pay $US83.5 million in interest due on its March 2022 bond today (Thursday). It has another $US47.5 million payment due on September 29 for March 2024 notes.
Both bonds would default if Evergrande fails to settle the interest within 30 days (the grace period) of the scheduled payment dates.
The company won’t settle and will kick the payment down the road for a month or more to give it more time to either gather more cash or continue negotiations for its rescue.
Bloomberg says Evergrande missed interest payments due on Monday to at least two of its largest bank creditors. The missed payments had been expected as China’s housing ministry had said that the company would be unable to pay on time, Bloomberg said.
Reuters said that despite the looming default, some funds have been increasing their positions in recent months and named fund giant BlackRock and investment banks HSBC and UBS as among the largest buyers of Evergrande’s debt.
S&P Global Ratings said on Monday it believed the Chinese government would only act in the event of a far-reaching contagion posing systemic risks to the economy and no one sees that situation emerging – yet.
In a note on Wednesday, Singapore’s DBS Bank analysts wrote that “Investors will look for signs of intervention by government to prevent a disorderly default by property company Evergrande.
Market turmoil surrounding the developer intensified in the past trading sessions as investors interpreted government’s silence hitherto on the distressed firm as a lack of official support.”
BNP Paribas estimated in a research note that less than $US50 billion of Evergrande’s $US300 billion outstanding debt is financed by bank loans, suggesting the Chinese banking sector will have a sufficient buffer to absorb potential bad debts.
Evergrande’s Hong Kong-listed shares fell as much as 7% on Tuesday, having tumbled 10% on Monday. That took the slide for the year so far to 85%. That’s what is attracting speculative buying from BlackRock and UBS.
The People’s Bank of China on Wednesday injected substantially more liquidity into the markets (US18.5 billion) through “reverse repurchase agreements,” or buying short-term bonds from some commercial lenders so banks have more cash on hand, western banks pointed out. Previous reverse repos have seen smaller injections in recent weeks.
China on Wednesday also kept its benchmark lending rate unchanged, with the one-year loan prime rate (LPR) held steady at 3.85%. The five-year LPR remained at 4.65%.
To have cut one or both rates would have been seen as implicit government support for the stricken developer. Doing nothing left outsiders none the wiser to what the Chinese government will do.
