China Evergrande Group: How real estate giant avoids payment defaults with last minute payments

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Evergrande has caught the world’s attention – but when the real estate giant is on the verge of collapse, it has quietly done a truly astounding feat.

Ailing real estate titan Evergrande has had its biggest test since its debt crisis began this week when it faced a major payment deadline.

The Chinese real estate juggernaut has been on the brink of collapse for months after amassing staggering A $ 420 billion in debt.

Another 30-day grace period for coupon payments on three dollar bonds worth A $ 200 million ended on Wednesday, with the company missing the initial interest deadlines for those in October.

According to Bloomberg, there has been widespread speculation that Evergrande would not pay and, therefore, would trigger cross-default clauses under the builder’s $ 19.2 billion outstanding dollar bills.

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But in a last-minute shock, Evergrande managed to scrape together the money to meet his obligations and survive another day.

It’s not the first time Evergrande has achieved a similar feat. The company has made a series of payments in the eleventh hour over the past few months in order to keep avoiding disasters.

But how exactly do you do it?

Evergrande’s mysterious move

The New York Times Addressed this deepening mystery, stating that if Evergrande had missed payments on Wednesday, it would have “triggered a default that could affect the Chinese economy.”

But that didn’t happen.

“Instead, the company has managed to jump from one appointment to the next and meet its obligations at the last minute – but often without explaining or even making it public,” he said Times writes.

Evergrande has previously attempted to sell parts of the company to raise the money, but just last month a plan to sell a multi-billion dollar portion of its real estate services business failed, prompting Evergrande to issue a securities filing announcement that it ” no “guarantee” can meet his payment deadlines.

Evergrande’s billionaire founder Xu Jiayin (also known as Hui Ka Yan) has also been urged to reach into his vast personal wealth to pay off debts and save the company.

But so far there is little evidence that this actually happened.

Evergrande has repeatedly ignored media requests for comments on the payments and provided few public details about the crisis and the company’s plans to resolve it.

There have also been rumors that the Chinese government intervened in the Evergrande nightmare, though there is little solid confirmation other than vague promises that downplay the risk of a possible collapse.

‘On the hook’

Kyle Rodda, an analyst for IG Markets, told news.com.au that while there is no clear evidence yet, it is likely that Evergrande was trying to sell assets and that the authorities were likely trying to do business To coordinate “behind the scenes”. .

“When you look at the finances, liquidity is an issue for the company, so they are unlikely to be paying with their own money,” he said.

“It is conceivable that the money came from Hui Ka Yan’s personal fortune. This has not been publicly disclosed and I have seen no evidence of it, but China’s government has made public statements that it deems it appropriate for this to happen, so it is unlikely to be ruled out. “

Mr Rodda said he suspected Evergrande was not pursuing a “deliberate strategy”.

“I think the company is probably holding its breath and doing what it can to meet its liabilities,” he said.

“I think it shows the business stress and precariousness that comes with defaults.

“My strongest suspicions would be that the money (used for repayments) could be tied back to either central or provincial authorities.

“They would be the most stable source of liquidity for the company and have the ability, not to mention the incentive, to ensure the company meets its commitments.”

But he said that if that were the case, there was a “duplicity” at play.

“China’s authorities do not want to look like they are bowing to a large, bloated, ruthless private company by helping them,” he said.

“At the same time, they cannot afford panic in their financial system or volatility in their markets caused by liquidity shortages or, worse, a cascade of defaults in the real estate market.

“This type defines the likely endgame for Evergrande – a type of controlled crash where contagion is limited and does not spill over into the broader financial system or lead to a property crash.”

Mr Rodda said a “total collapse” of Evergrande would be “terrible” for global financial markets, including Australia, because “while it may not pose a systemic risk to the global financial system, it would create great stress, market volatility and a tremendous” slowdown of the Chinese economy ”.

“The more likely outcome is a slow bailout that will shrink the company to size under pressure from central government and sell its assets to more stable institutions,” he predicted.

“At this point, the question arises, how much is it slowing China’s growth as real estate activity falls, construction activity then slows and demand for raw materials falls?

“That would put a considerable strain on the Australian economy because it would lead to a decline in the demand for steel and thus iron ore.”

China’s “risks” for the global economy

And as yet another sign of the growing seriousness of the Evergrande fiasco, the US Federal Reserve confirmed this week that China’s ailing real estate industry could have a significant impact on America.

“Given the size of China’s economy and financial system, as well as its extensive trading relationships with the rest of the world, financial crises in China could weigh on global financial markets by worsening risk sentiment, pose risks to global economic growth and the United States,” it said in an update on US financial system.

Crisis “hardly over”

While Evergrande’s final miracle at the eleventh hour was welcome news, Bloomberg stressed that “the crisis in Asia’s largest junk bond issuer is hardly over”.

It has been reported that two holders of other dollar bills sold by Evergrande also failed to receive payment for coupons officially due on Saturday but now have a 30-day grace period.

And there is growing evidence that the chaos is spreading as “a number of other developers, after years of debt-driven expansion, have also found themselves in distress taking action against speculation and debt,” with the “contagion” now spreading to other parts of credit is expanding market.

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