Evergrande shares jump 17.6% but default anxiety persists

Chairman Hui Ka Yan stressed his desire to reassure investors and resume work and production

Logo outside the China Evergrande office in Wan Chai, Hong Kong                                 
The Evergrande Group’s shares jumped after the real estate company resolved the issue with Chinese bond holders – Photo: Shutterstock
                                

Evergrande Group saw its stock price jump by as much as 30% on Thursday after the real estate giant made an agreement with Chinese bond holders. 

Evergrande fuelled its rapid expansion by taking on substantial loans. But it began to run into difficulty at the start of the year when regulators introduced caps for the amount of debt developers could take on. 

With total liabilities over $300bn, Evergrande is the world’s most indebted property company. In recent months, it halted construction projects across China and stopped repaying some suppliers and investors. 

The prospect of the company being unable to make good on its interest payments has weighed heavily on market sentiment, both domestically and internationally, this week. 

Some commentators and analysts warned that its potential collapse could prove to be similar for the Chinese economy to what the fall of Lehman Brothers was for the US economy in 2008, the start of a broader financial crisis. Others have remained far less pessimistic. 

Committed to settling domestic interest payments

On Wednesday, Evergrande said it would pay interest payments for its domestic bonds worth around $35.9m. With domestic markets temporarily reassured, Hong Kong’s Hang Seng index closed up by 1.19%. 

In a statement on Thursday, Evergrande’s chairman, Hui Ka Yan, maintained that the firm’s “top priority is to help its wealth investors redeem their products”, adding that the company will “try its best to resume work and production”. 

International bond repayments remain uncertain

Although Evergrande has pledged to make good on its domestic interest payments, anxiety remained as to whether it would settle the $83.5m in interest on a $2bn dollar-denominated offshore bond that is due on Thursday, as well as a $47.5m payment due next week. 

Should it fail to settle within 30 days of the scheduled payment dates, the company would default. 

Evergrande closed Thursday up 17.62% at HK$2.67 ($0.32), down by 81% since the start of the year. 

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