Evergrande Keeps Failing the Tests

At 04:00 a.m. GMT, the Evergrande Group was due to pay USD 148.1 million as payments on three separate bonds, but it failed to do so yet again.

Evergrande has now missed coupon payments on three consecutive rounds in less than three weeks, escalating concerns over contagion in the Chinese real estate market.

After having missed payments on five separate bonds, the worry now is that Evergrande will miss overseas payments and possibly prioritize those for mainland China creditors.

Foreign investors of Evergrande’s debt are now at risk of sustaining massive losses if the company continues to be silent and miss payments at the end of their grace periods.

Evergrande’s offshore payments for September 23 have a 30-day grace period, which means we are less than two weeks away from a formal default.

Trading in Evergrande’s shares has been suspended since October 4 on the announcement of a major transaction. The same day also brought news that another developer defaulted on debt worth USD 206 million in the international market.

Keep in mind that Evergrande’s shares are still suspended, which diverted the volatility to its electric vehicle unit shares, which fluctuated between a 4% loss and a 9% rise just last week.

Evergrande’s electric vehicle unit announced that its first production line will hit markets as early as 2022.

The major transaction that caused the trading halt is estimated at around USD 5.1 billion, which might give the developer some liquidity to cover some of its payments.

The Chinese high-yield Dollar bond market then suffered a big selloff throughout the first week of October, which was only exacerbated upon the continued failure to meet payments.

On October 11, another Hong Kong-listed real estate company, Modern Land, requested a three-month extension on an October-25 bond payment worth USD 250 million, in hopes of avoiding any potential default.

Evergrande’s next major payment worth 121.8 million Yuan will be due on October 19, but the more important one is that at the end of the grace period for its September 23 payment.