China Evergrande misses bond payment deadline

HONG KONG -- China Evergrande Group, the world's most indebted property developer, inched closer to its maiden bond default after it failed to make a coupon payment as scheduled to at least some investors, two people familiar with the matter said.

Evergrande, which is running out of cash and owes funds to staff, contractors, suppliers, banks and buyers of investment products, was due to pay $83 million in interest to holders of an offshore dollar bond on Thursday.

Two investors said the deadline of midnight New York time had passed without any notice from Evergrande, but the company has a 30-day grace period to send the funds before it is officially in default.

"We will reach out to the company to understand their plans," one said. "They still have the grace period and we note reports that Chinese regulators have told the company not to default on dollar bonds."

The company also owed 230 million yuan ($35.6 million) in interest on a domestic bond on Thursday. It said it had "resolved" the matter with bondholders, without giving details.

A Bloomberg report on Thursday said authorities had told the developer to take all measures possible to avoid a near-term default on its dollar bonds while focusing on completing unfinished properties and repaying individual investors.

Some Evergrande bonds are trading at a quarter of their face value, indicating investors see default or a restructuring as a near certainty. The group's shares have lost more than four-fifths of their value this year.

Evergrande's Hong Kong shares fell another 11.6% on Friday to HK$2.36.

The Thursday coupon payment deadlines were the first for Evergrande since the company warned earlier this month that it might default on its debts if it fails to attract new investors or sell assets.

It faces a series of such semiannual coupon payment dates in the coming months, with $46 million due Sept. 29 and $721 million more due on offshore bonds between October and December, according to Fitch Ratings. Another $360 million will be due in January and the company also has 436 million yuan of coupon payments due in October and January.

Matters are coming to head for Evergrande after over a year of turmoil.

Its current predicament stands in stark contrast to its message in early 2020, when founder Xu Jiayin insisted investors should "relax" and said the company had never defaulted and would not do so.

Back then, he unveiled a strategy summarized as "grow sales, control scale and reduce leverage." It seemed to be working at first, with the company boosting sales, repaying bonds with its own money and rapidly raising equity. However, while its interest-bearing liabilities fell, the amounts it owed to its suppliers, contractors and retail wealth investors rose.

After new regulations that kicked in late last year effectively blocked the company from new bank borrowings or bond issues unless it cut its leverage, the company began missing payments to suppliers, leading to the suspension of development projects. Over half its 800 projects are now idle and wealth management investors this month descended on the company's offices demanding payment.

The ballooning problems have eroded confidence among homebuyers, with the company flagging that sales in September will see "significant" decline. This would follow a 26% drop in August sales proceeds from a year earlier due to steep discounting.

The company this month retained Houlihan Lokey and Admiralty Harbour Capital as financial advisers to assess its capital structure and explore solutions to its liquidity crunch. It warned that failure to roll over payments due "may lead to cross-default under the group's existing financing arrangements."

Xu in a letter to staff on Tuesday, though, wrote that the developer is confident it will meet its responsibilities to customers, investors and lenders.