Finding $83.5 Million

Evergrande found $83.5 million.

With just days to go before the grace period on a missed September interest payment lapsed, the company wired the money to noteholders, who were set receive funds before Saturday.

As late as Thursday, the market assumed the company wouldn’t make the payment, possibly triggering cross-defaults. The news was a short-term fillip to Chinese junk bonds, but Evergrande is still a zombie — “living dead” as one analyst put it Friday.

The simple figure (below) gives you a sense of the company’s predicament.

The clock is ticking on 30-day grace periods associated with several other missed coupon payments. On top of that, Evergrande owes interest on four additional dollar notes by the end of this year. October 29 is the next key date.

Clearly, Friday’s payment was good news for holders of dollar bonds. Given the necessity of placating angry retail investors and local homebuyers (i.e., considering the Party’s obsession with avoiding even the appearance of social unrest), many assumed the interests of international bondholders would be subjugated to local creditors, both large and small. Now, though, it’s at least possible the company will figure out a way to service offshore debt.

The planned sale of a 51% stake in the company’s property-services unit to Hopson Development fell apart late last week. In an associated filing, Evergrande said Wednesday that “no material progress” has been made on other asset sales. There’s no guarantee the company will be able to raise enough cash to pay offshore debt. 2022’s maturity wall is daunting (figure below).

Bonds due in March rallied Friday but are still priced at pennies on the dollar. Absent aggressive asset sales, it seems unlikely Evergrande will be able to make principal repayments early next year.

As I put it last month, Evergrande is buying time. With no money. Or, actually, with a little bit of money it got from somewhere. The couch cushions maybe.

This kind of can-kicking isn’t possible in perpetuity, though. A restructuring of some kind is inevitable absent a historic government bailout or some other deus ex machina.

Beijing has given no indication that the Party intends to backstop the company wholesale.

Although the government is surely working behind the scenes to facilitate where it can, officials have gone out of their way to emphasize that the situation, as regrettable as it is, remains “controllable.” Unless and until that language softens, Evergrande appears to be on its own.


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2 thoughts on “Finding $83.5 Million

  1. Xu Jiayin was persuaded to contribute, perhaps? It is interesting that the sale to Hopson fell apart, because Hopson is insisting the deal is binding. Perhaps Xu has decided to unwind the development business and keep the management business.

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