China Evergrande bonds rebound as loan payment extensions ease default worries

HONGKONG/SHANGHAI: Bonds of heavily indebted developer China Evergrande Group staged a late rally on Thursday on news that some creditors had agreed to loan payment extensions.

One source told Reuters that Evergrande has requested an extension for at least three months on a trust loan interest payment to CITIC Trust, one of its major trust creditors, which was due in late August, citing tight liquidity.

CITIC has agreed to the extension, the source with direct knowledge of the matter said. The source added that similar delayed interest payments have been seen across the trust sector.

CITIC dispatched a small team to Shenzhen, where Evergrande is based, last week, but it is not optimistic that Evergrande’s liquidity will improve soon, the source added, citing difficulties in finding buyers for its assets and the country’s strict mortgage policies.

News of the extensions came after a report on Wednesday said Evergrande would suspend interest payments due on loans to two banks later this month, as well as payments to its wealth management products. That report triggered steep falls in the company’s onshore bonds and shares on Thursday.

Evergrande declined to comment.

Regulators have warned that Evergrande’s 1.97 trillion yuan ($304.7 billion) of liabilities could spark broader risks to China’s financial system if not stabilised.

The company, China’s second-largest property developer, said last September its liabilities involve more than 128 banks and over 121 non-banking institutions.

The Shenzhen stock exchange temporarily halted trading in two Evergrande exchange-traded bonds on Thursday after their prices sank more than 20%. After resuming trade, Evergrande’s 6.98% January 2023 bond fell more than 30%, triggering a second trading freeze.

They are now trading at roughly a third of their face value.

Evergrande’s dollar bonds due June 2025 dropped about half a cent to 24.709, but later turned more than two cents higher as reports emerged of the deadline extensions.

“It might end up being positive news as it might draw a line in the sand”, said Siddharth Dahiya, head of emerging markets corporate debt at Abrdn, formerly Standard Life Aberdeen plc.

“But we don’t know, there is very little clarity... The first reaction (from the markets) is positive though.”

Its Hong Kong-listed stock dropped more than 10% to HK$3.32, its lowest since July 8, 2015, before trimming losses to end down 4.3%. Evergrande shares have tumbled more than 76% this year.