- Distressed debt funds are buying bonds issued by embattled property developer Evergrande.
- Bruce Richards of Marathon Asset Management bought Evergrande debt for the first time this week, he told Bloomberg.
- Debt investors seem to have confidence that Beijing will solve the company’s financial problems.
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Distressed debt funds are buying into Evergrande-issued bonds, betting that China will manage to engineer a significant corporate restructuring.
Marathon Asset Management’s chairman and CEO Bruce Richards told Bloomberg in an interview Thursday he sees opportunities in the embattled real-estate developer, because there’s a “lot of commerce” related to Evergrande.
The distressed-debt specialist said he bought debt in the company for the first time this week and would continue to do so at current low prices, on expectations that the company will be restructured.
Prices for dollar-denominated Evergrande bonds maturing from 2022 to 2025 have dropped to 26 or 25 cents on the dollar, Reuters reported, citing Refinitiv data.
With liabilities equating to 2% of China’s GDP, concerns about Evergrande’s potential collapse had initially been seen as a major headwind for global markets in recent weeks. Although the company missed a second major offshore debt payment in a week on Wednesday, the usual bottom-fishers are bidding up its bonds anyway “because central banks always bail everyone out, right?” Rabobank analysts said in a note.
Evergrande has made no announcement about missing both payment deadlines.
Jason Friedman, a partner at Marathon Asset Management, told the Financial Times Evergrande’s “highly complex” situation is likely to play out over several years.
Other US funds Saba Capital, Redwood Capital, Silver Point Capital, and Contrarian Capital have also recently purchased debt issued by the troubled property developer, the FT reported.
While most investors are waiting to see how its other interest payment obligations play out, trading volumes have topped $124 million in one dollar bond maturing in 2025, it said, citing Bloomberg data. The next debt repayment deadline is on October 12, with coupon payments worth almost $150 million on three dollar bonds.
Hong Kong-based brokerage Wealthy Securities’ managing director, Louise Tse, told the FT that distressed debt investors are confident that whatever happens, there will be a solution.
Still, Evergrande remains a risk for China despite market concerns seemingly abating recently as it will take time to recuperate losses.
Evergrande struck a deal with a Chinese state-owned enterprise to sell a 20% stake in a commercial bank for $1.5 billion, signalling that authorities are helping it resolve its financial trouble. But those proceeds are equal to less than 1% of its total liabilities.
China’s central bank said this week it would build a mechanism to safeguard the stable and healthy development of the real estate market and protect the lawful rights and interests of homebuyers.
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