Financial markets globally have seen alarming dips in the last few days, caused by a selloff triggered by fears of Evergrande’s probable default. The Chinese property giant has been under the radar for being unable to meet its liabilities which could cause a ripple effect in global financial markets as it has the potential to disrupt the Chinese economy which is the second largest in the world.
Evergrande’s property unit Hengda stated that the company has reached an agreement with its domestic bondholders which can facilitate it in avoiding default on its 2025 bond payments. According to Bloomberg News, the interest payment is worth 232 million yuan.
While the statement specified investors who have purchased and held bonds from before September 22 of the current year will be paid the interest amounts, it did not address the repayments owed to offshore bondholders.
Analysts are expecting the deal to provide some relief to the embattled markets for the time being. Chief Executive Officer at the Global CIO Office Gary Duan, said “for confidence to return more meaningfully, it will need the market to see a sight of the broad restructuring plans for Evergrande”.
Evergrande has an employee base of 200,000 across over 280 cities and claims that it contributes to generating jobs for around 3.8 million Chinese. However, the property developer is now dealing with investors and suppliers protesting outside its offices, demanding payments owed to them.
The company sent out a warning of its inability to pay off its liabilities while it deals with a debt exceeding $300 billion. However, the founder, Xu Jiyan is reported to have said that he believes Evergrande will “step out of the darkest moment soon”.
The group has brought experts on board to assist prevent its collapse, which includes financial services firm Houlihan Lokey, the firm that has experience advising on the restructuring of Lehman Brothers as well. State regulators have also sent a team comprising of financial advisers to evaluate the financial condition of the property developer.
Earlier this week, S&P a ratings agency is reported to have said that it expects the Chinese government authorities to intervene in case of a large-scale fallout.
Director of a macroeconomic research division under the Asian Development Bank Abdul Abiad commented that Beijing’s “banking system’s capital buffers are strong enough to absorb a shock even of Evergrande’s size, should it materialize”.
“It warrants careful monitoring because housing is an important component of the Chinese economy. Housing makes up a substantial portion of household wealth so obviously if the property sector is impacted that could have knock-on efforts for the broader Chinese economy,” he added.
