Evergrande Group seeks to help retail investors before debt matures

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Global investors have been in suspense in recent weeks

China Evergrande Group will make it a top priority to help retail investors buy back their investment products sold by the indebted real estate giant, its chairman said, as uncertainty hangs over payment of interest due for a dollar bond Thursday.

Hui Ka Yan’s statement came after the developer said on Wednesday it had “resolved” a coupon payment on an onshore bond, pushing the company’s stock price to its highest percentage rise over one day since its IPO in 2009.

Global investors have been in suspense in recent weeks as Evergrande’s debt obligations, working under a mountain of $ 305 billion in debt, raised concerns that his malaise poses systemic risks to the financial system. Chinese.

The company faces $ 83.5 million in dollar bond interest payments due Thursday on a $ 2 billion offshore bond. And more payments will fall due next week, with a bond interest payment of $ 47.5 million due.

Without touching on offshore debt, the president on Wednesday evening urged his executives to ensure the quality delivery of properties and the repurchase of wealth management products held by millions of mainly retail investors.

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There is growing political pressure on the company to act as homebuyers and retail investors grow angry that they have gobbled up their savings in its opaque properties and wealth management products. .

“Assuming this goes in the direction of debt restructuring… we believe the retail investor nature of wealth management products would be a priority for social stability,” said Ezien Hoo, Credit Analyst at OCBC Bank.

Foreign investors, who hold papers issued by offshore entities, might find it more difficult to get paid because they had “less bargaining power than other lenders closer to assets,” he said.

Evergrande shares jumped 32% on Thursday as trading resumed after a public holiday, although gains were quickly reduced and months of heavy losses still leave the stock down more than 80% for the ‘year to date.

Evergrande’s real estate services unit also climbed. The sense of relief spread to mainland real estate stocks listed in Hong Kong, with Country Garden, China’s largest developer, up 14%. Sunac China jumped 16% and Guangzhou R&F Properties jumped 26%.

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Oscar Choi, founder and CIO of investment firm Oscar and Partners Capital Ltd, said Evergrande feared stoking social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their money. losses.

Once those priorities were met, Evergrande would speak to his other creditors, he said, adding, “Otherwise, a few hundred thousand people will be fighting with the government.

A spokesperson for the company did not immediately respond to a request for comment on its payment obligation due Thursday.

Contagion risks

Evergrande, who epitomized the loan-to-build business model and once the best-selling developer in China, has struggled in recent months as Beijing tightened rules in its real estate industry to curb too much debt. and speculation.

Investors fear the rot could spread to creditors, including banks in China and overseas, although analysts have downplayed the risk that a collapse will result in a “Lehman moment” or systemic liquidity crunch.

Fitch Ratings said on September 16 that it had reduced its 2021 economic growth forecast for China to 8.1% from 8.4%, citing the impact of the slowdown in the country’s real estate sector on domestic demand.

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Highlighting the rush to avoid the risk of contagion, Chinese Estates Holdings, Evergrande’s No.2 shareholder, said on Thursday it had sold its stake in the company for $ 32 million and planned to pull out of the holding altogether.

Some analysts say it could take weeks for investors to get a feel for how the Evergrande situation will resolve itself.

“The company could restructure its debts but continue to operate, or it could liquidate,” wrote Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. In either case, investors in the company’s financial instruments would likely suffer losses, he wrote.

“In the event of liquidation, however, Chinese and global investors could decide that the contagion could spread beyond China,” he added.

U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that Evergrande’s problems appeared to be unique to China and that he saw no parallel with the U.S. corporate sector.

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