Tuesday, October 19

Share Trading Suspended as Debt Test Looms: Evergrande Update


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(Bloomberg) — Shares in China Evergrande Group and its property management unit were suspended from trading Monday, as a fresh debt test loomed for the developer underscoring broader risks that have left credit markets on edge.

No reason was given for the halts Monday, with shares of other unit China Evergrande New Energy Vehicle Group Ltd. still trading in Hong Kong.

People familiar with the matter have said that a dollar note maturing Oct. 3 issued at an initial amount of $260 million by an entity called Jumbo Fortune Enterprises is guaranteed by Evergrande. As the maturity is a Sunday, the effective due date is Monday. The issuer is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit.

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Nonpayment of the bond principal would constitute a default as the note has no grace period, although five business days would be allowed if failure to pay is down to administrative and technical error, according to the people. Details of the guarantees weren’t broadly known as the note prospectus isn’t publicly available and the deal wasn’t listed on exchanges.

Uncertainty over the full extent of Evergrande’s debt load, beyond its more than $300 billion reported in liabilities, has plagued investors since a liquidity crisis at the firm stoked fears of a collapse that could trigger financial and economic contagion. Authorities ranging from Federal Reserve officials to Hong Kong’s central bank are looking into just how exposed financial institutions are to the crisis.

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Key Developments:

Evergrande, Property Management Unit Suspend Hong Kong TradingNervy Markets Await Outcome for Opaque Bond Tied to EvergrandeChina Steps Up Efforts to Ring-Fence Evergrande, Not to Save it The Evergrande Fear Has Receded Too Easily: John AuthersEvergrande Sep. Sales Drop 55% M/M Amid Crisis, Data IndicateEvergrande Woes Spread to Sweden With EV Unit Seeking New OwnersEvergrande Pays Back Some Cash Owed to Wealth Product Investors

Trading in shares suspended (8:48 am)

No reason was given for the trading halts in China Evergrande Group and Evergrande Property Services. Shares in its vehicle unit continue to trade.

Markets Await Clues on Bond Tied to Evergrande (8:35 am)

Any failure to pay Jumbo Fortune’s note may also pose a risk of cross-default for Evergrande’s other bonds, according to Bloomberg Intelligence analyst Daniel Fan. Creditors of the Jumbo note could potentially ask the trustee to declare a formal default if they achieve a minimum threshold of investors, and that could trigger holders of other dollar bonds to do the same, he said.

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Cross-guarantees have been a problem for China over the past decade with the rise of shadow banking, said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “There is little ability to find out the size of the problem until there is a debt blowup and creditors worry about not getting paid.”

China Will do Everything it Can to Ring-Fence Risk (8:28 am)

China has signaled it will do everything it can to ring-fence Evergrande, while showing little interest in a direct bailout of the developer. That doesn’t bode well for bondhholders – both onshore and abroad — looking for some kind of rescue from the Chinese government.

Beijing has stepped up efforts to limit fallout, having dispatched top financial regulators to nudge banks to ease credit for homebuyers and support the property sector. They also bought out part of Evergrande’s stake in a struggling bank to limit contagion. Over the past 10 days, the central bank has pumped 790 billion yuan ($123 billion) into the financial system.

©2021 Bloomberg LP

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