Silence.
That’s what the market heard from Evergrande, which was supposed to make an $83.5 million coupon payment on a dollar-bond Thursday.
Workers at the company’s EV business are in the same unenviable situation as bondholders. That is, they’re not being paid.
After a farcical Thursday rally, Evergrande’s stock and bonds fell Friday. The EV venture dove 25%. The charts are mostly meaningless (figure below).
The company, and anything to do with it, is mostly insolvent.
Now, the question is what happens during the 30-day grace period on the dollar-bond. One possibility is that the company makes a payment. Officials reportedly told Evergrande to “avoid a near-term default” on dollar debt and “communicate proactively” with bondholders.
If a payment is made sometime during the grace period, the company can avert a default. The problem is, Evergrande faces more payment deadlines over the coming months, and by its own admission, hasn’t made much progress on asset sales aimed at raising cash.
It’s possible the company can negotiate for some kind of extension or otherwise come to new terms with bondholders, but you have to think Beijing will spend the next month pondering how much state support to provide. Or what options are available for seizing the company, breaking it up and avoiding any social upheaval that might be associated with missed payments on wealth management products and unfinished property developments.
The PBoC injected another 120 billion yuan in liquidity Friday (70 billion net). That brought the net injection over five business days to 460 billion yuan (the figure below shows the gross injection).
Overnight borrowing costs dropped to the lowest levels in two months. Whatever Beijing decides to do (or not to do) for Evergrande, the PBoC plainly isn’t prepared to countenance any turmoil in interbank markets.
Ultimately, Chinese markets ended the week on a sour note. Mainland shares fell, ending the holiday-shortened week basically flat, tech shares slumped 2% in Hong Kong and the Hang Seng dropped 1.3%, capping a second straight sizable weekly loss.
