Evergrande remains mum on $ 83.5 billion bond payment, China steps in to ensure cash flow is used to complete housing projects


Another day, another Evergrande debacle.

Although markets were vaguely reassured earlier this week that they had reached an agreement with creditors on a payment of renminbi-denominated bonds, offshore bondholders are still in the dark.

The other, more closely watched offshore bond payment is $ 83.5 million and was also due at midnight New York time on Thursday or at noon Friday in Hong Kong. However, bondholders have yet to receive any money and Evergrande has yet to release a statement regarding the repayment, meaning the 30-day grace period before a default is officially declared. has now started.

The offshore bond in question has disintegrated as markets fear even more uncertainty about what could turn into the biggest restructuring process in Chinese history. Other Evergrande notes also slumped even lower on Friday to around 30 cents, as the company’s shares fell more than 13%, taking its combined losses to over 80% since the start of the year. . Evergrande’s electric car business is also on the brink of collapse and has stopped paying its staff and factory equipment suppliers, according to Bloomberg who cited people familiar with the matter.

But, to make matters worse for creditors, Bloomberg also revealed that China’s Ministry of Housing and Urban and Rural Development has stepped up its monitoring of Evergrande’s bank accounts, to ensure that any remaining liquidity is diverted to the finishing housing projects rather than towards debt holders. .

The housing regulator has asked its various subsidiaries across China to ensure that all funds from Evergrande’s bank accounts are allocated to dedicated escrow accounts that will prioritize construction of housing projects in Classes. Additionally, before payments can be withdrawn from designated accounts, such as payments for building materials, they must first be approved by the state.

Such a decision is certainly confusing, as making payment arrangements for operational expenses before payments to creditors usually only occurs after the company in question has filed for bankruptcy. Indeed, the latest ruling suggests Chinese homeowners are first on the priority list rather than creditors, banks and bondholders, as the Chinese government tries to prevent a complete collapse in its real estate industry.

In the meantime, it looks like Credit Suisse has learned from its previous embarrassing disasters with Archegos and Greensill, and was able to breathe a huge nod of relief this month, after learning that not only was it not exposed to the disorder of Evergrande, but that it had liquidated its positions at the end of 2020.

“The risk management procedures really worked at the time…[but]it was a warning signal about the type of deals being made “by bankers and wealth managers in Asia, people familiar with the matter told the Financial Times. Credit Suisse has spent ten years arranging $ 4.6 billion in dollar-denominated bonds for Evergrande, but has refrained from taking on any new debt for the past two years due to concerns over the financial situation. of the real estate company.

Of the $ 4.6 billion in bonds issued by Credit Suisse and sold to numerous hedge funds, private clients and asset managers, there is still $ 4.2 billion in circulation. However, the bank decided to liquidate its own residual Evergrande exposure, which was built up during the underwriting process. On Thursday, the Switzerland-based bank announced to its clients and investors that it only held a tiny portion of Evergrande’s $ 300 billion debt, adding that it “is not an existing lender of Evergrande. Evergrande and that we have no direct exposure to the company. “

Phew, what a sign of relief, at least for Credit Suisse. In the meantime, the chaos surrounding Evergrande continues, as authorities struggle to preserve social order after angry retail investors have enveloped the company’s corporate headquarters in Shenzhen for three straight days. Meanwhile, only crickets can be heard from Evergrande on his now overdue $ 83.5 billion bond payment.

Information for this briefing was found through the companies mentioned. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.


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