UPDATEReal estate developer China Evergrande Group seems to avoid default in the nick of time. The company, which is burdened with a debt burden of converted 260 billion euros, is said to have transferred interest payments. The German creditor DMSA (Deutsche MarktScreening Agentur) announced earlier today that the group would be declared bankrupt.
Clients of the international clearing firm Clearstream have received arrears of interest on three US dollar bonds issued by Evergrande, a Clearstream spokesperson said. Two investors who own two of the bonds confirmed that they have received the payments. They reported that to Bloomberg news agency on the basis of anonymity because they were not authorized to speak in public.
Investors waited to see if the discredited developer would make interest payments totaling $148.1 million before the end of the 30-day grace period on Wednesday. Evergrande missed the first payment terms last month. It concerns three loans with maturity dates 2022, 2023 and 2024.
The real estate giant was on the brink of default in October. But the company managed to prevent this. The fact that money has still been transferred does not mean that the crisis at the largest issuer of junk bonds in Asia is over, given the debt mountain of the group. A number of other developers have also run into problems. The problems have even spread to other parts of the credit market.
On Monday, two holders of other Evergrande bonds said they had not yet received payment for loans officially due on Saturday. Again, a grace period of 30 days applies before a missed payment is considered a default. Evergrande has not yet responded to a request for comment.
Chinese authorities are trying to mitigate the effects of the wider crisis on the real estate market. Nevertheless, concerns remain. The German creditor DMSA (Deutsche MarktScreening Agentur) previously reported that Evergrande wants to declare bankruptcy. DMSA is a German market researcher who owns Evergrande bonds. It also calls on other involved investors to join the application.
There are fears that the collapse of Evergrande could create a knock-on effect in the Chinese real estate world and beyond. Several other Chinese real estate developers have already missed debt service deadlines in recent times. The Chinese government and the country’s central bank have indicated that they will ensure that any bankruptcies do not pose a threat to the entire financial system.
DSMA concluded in a study that the bankruptcy of Evergrande could eventually lead to a ‘Great Reset’, ie the final collapse of the financial system. In order to be able to file for bankruptcy as a creditor of the company, DMSA itself invested in Evergrande bonds, whose grace period expired on November 10.
Particularly problematic for Evergrande is that all 23 outstanding bonds have a so-called cross-default clause. “This means that if one of these bonds defaults, all 23 outstanding bonds will automatically be in default status,” said DMSA analyst Marco Metzler.
In order to establish bankruptcy, an insolvency application must be filed with the court. This can be done by the company itself or by one or more creditors of the company. And that is exactly what is about to happen. DMSA is also in talks with other investors and hopes they will join the bankruptcy filing.
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