Público Evergrande shoots on stock exchange as Chinese authorities ask him to avoid defaulting his debt

Hong Kong / Singapore

Agencies

Chinese real estate giant Evergrande skyrocketed this Thursday after announcing that it will face interest payments on bonds denominated in yuan (although it had not confirmed whether it will do the same with others denominated in dollars, whose deadline is also due this Thursday).

The company titles traded in Hong Kong rose by more than 31% at the opening of the session, while by the end of the day progress had been reduced to a not negligible 17.62%.

However, real estate securities are still listed 91% below the value they reached at their peak in October 2017. So far this year, Evergrande's value has plummeted by 80% (40% in the last month) because of investors' concerns about the company and their ability to cope with their payments to investors and suppliers.

The Chinese authorities have asked China Evergrande Group to avoid a short-term non-payment of its dollar bonds. In a recent meeting with property group executives, regulators said that the company should proactively communicate with bondholders to avoid default, but did not provide more specific guidance.

For its part, the Wall Street Journal (WSJ) said Thursday that the Chinese authorities were asking local governments to prepare for the possible fall of Evergrande, citing those responsible with knowledge of the talks. According to this information from the US newspaper, local governments have been ordered to bring together groups of accountants and legal experts to examine the finances surrounding Evergrande's operations in their respective regions.

They have also been ordered to talk to local real estate developers, both state and private, to prepare to take over the projects, and to set up law enforcement teams to control public outrage and "mass incidents", a euphemism to refer to possible social protests, according to WSJ.

The real estate company has to face the maturity of some $37 billion in loans due before the end of the first half of 2022, a fraction of its total liability, amounting to more than $300 billion. Investors are mostly Chinese, as domestic buyers account for 80% or more of the dollar holdings of Chinese offshore bonds (issued abroad), according to analysts.

Evergrande's President, Hui Ka Yan, urged his executives late Wednesday to ensure the delivery of quality properties and the reimbursement of their equity management products, which are often in the hands of millions of retail investors in China. He didn't mention the company's foreign debt.

Analysts said the measures underlined political pressure on Evergrande, whose liability amounts to 2% of China's gross domestic product, to contain the consequences of its credit crisis and protect private investors from professional creditors.

Evergrande, who embodied the business model of "borrowing to build" and once China's best-selling promoter, had problems in recent months when Beijing tightened the rules in its real estate sector to curb debt levels and speculation.

Investors fear contagion will reach creditors, including Chinese and foreign banks, although analysts have downplayed the risk that a collapse will trigger a Lehman Brothers moment, or a systemic liquidity crisis. U.S. Federal Reserve President Jerome Powell said Wednesday that Evergrande's problems seem unique to China and that he saw no connections with the US business sector.

After initial fears, the European stock exchanges seem to be calmer, and profits have returned this Thursday for the third consecutive day.

The Ibex 35 has scored an increase of 0.78%, up to 8,876.9 points. The rest of the European stock exchanges have also presented promotions at the session, with the exception of London (-0.07%). Thus, the Paris stock exchange has risen by 0.98 per cent, Frankfurt by 0.88 per cent and Milan by 1.41 per cent.