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By David Watkins October 4, 2021

  •  Evergrande, property unit shares halted in Hong Kong
  •  Note said to be guaranteed by Evergrande matured Sunday

Shares in China Evergrande Group and its property management unit were suspended from trading Monday, as a fresh debt test loomed for the developer underscoring broader risks that have left credit markets on edge.

Hopson Development Holdings Ltd., whose shares were also suspended, plans to acquire a 51% stake in Evergrande Property Services Group Ltd. according to Chinese financial news platform Cailian, citing unidentified people. Cailian amended an earlier report to say the deal would give the unit a valuation of more than HK$40 billion ($5.1 billion).

Trading of Evergrande was suspended pending an announcement on a “major transaction,” the developer said Monday in a stock exchange filing. Evergrande Property said it was halted before an announcement on a possible offer for shares in the company.

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Uncertainty over the full extent of Evergrande’s debt load, beyond its more than $300 billion reported in liabilities, has plagued investors since a liquidity crisis at the firm stoked fears of a collapse that could trigger financial and economic contagion.  Having already fallen behind on payments to banks, suppliers and holders of onshore investment products, it also hasn’t given any indication that it paid two recent dollar bond coupons.

People familiar with the matter have said that a dollar note maturing Oct. 3 issued at an initial amount of $260 million by an entity called Jumbo Fortune Enterprises is guaranteed by Evergrande. As the maturity is a Sunday, the effective due date is Monday. The issuer is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit. 

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Non-payment of the bond principal would constitute a default as the note has no grace period, although five business days would be allowed if failure to pay is down to administrative and technical error, according to the people. Details of the guarantees weren’t broadly known as the note prospectus isn’t publicly available and the deal wasn’t listed on exchanges. Monday is a holiday in China.

Key Developments:

  • Hopson Dev.’s USD Bonds Tumble on Evergrande Mgmt Unit Report
  • Hopson to Buy 51% of Evergrande Mgmt Unit: Cailian
  • Evergrande, Property Management Unit Suspend Hong Kong Trading
  • Nervy Markets Await Outcome for Opaque Bond Tied to Evergrande
  • China Steps Up Efforts to Ring-Fence Evergrande, Not to Save it
  • China Builder Sinic Faces Creditor Demanding $75 Million Payment
  • The Evergrande Fear Has Receded Too Easily: John Authers
  • Evergrande Sep. Sales Drop 55% M/M Amid Crisis, Data Indicate
  • Evergrande Woes Spread to Sweden With EV Unit Seeking New Owners
  • Evergrande Pays Back Some Cash Owed to Wealth Product Investors

Coming Due

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Evergrande NEV Jumps 19.5% in Afternoon Trade (1:27 p.m.)

Trading continues in the developer’s vehicle unit, China Evergrande New Energy Vehicle Group Ltd. on Monday, with the stock rising nearly 20% in afternoon trade.

Hopson’s Chu May Become Latest Tycoon to Bolster Evergrande (12:37 p.m.)

Another billionaire tycoon appears poised to come to the aid of embattled Evergrande. 

The Chu family control Hopson Development and could become the latest wealthy family to help shore up finances for Evergrande, after Hopson reportedly agreed to buy a controlling stake in its property services business, according to Cailian. Chu Mang Yee is described as an “invisible magnate” by Chinese media.

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Hopson Development Plans Evergrande Property Stake (11:53 a.m.)

Hopson Development plans to acquire a 51% stake in Evergrande Property Services, Cailian reported, citing unidentified people. That would give the management unit a valuation of more than HK$40 billion, Cailian said in an amended story. The Hong Kong stock market was closed for a public holiday Friday, before trading in Evergrande property shares were suspended along with those of its parent on Monday. 

Evergrande’s 8.25% dollar bond due March 2022 rose about 3 cents on the dollar to 28 cents, while its note due 2025 is up 1 cent at 24 cents following the report of Hopson Development’s stake sale, according to credit traders in Hong Kong.

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Hopson Development’s USD Bonds Tumble (11:35 a.m.)

Hopson Development’s dollar notes are set for their biggest losses on record Monday after Cailian reported the firm plans to acquire a 51% stake in Evergrande Property Services. The company’s 6.8% dollar bond due 2023 sank 4.9 cents on the dollar to 90.2 cents, Bloomberg-compiled prices showed. The firm’s 7% note due 2024 declined 5 cents to 89.2 cents.

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China Builder Sinic Faces Creditor Demanding $75 Million Payment (10:24 a.m.)

Amid heightened scrutiny on Chinese property firms as Evergrande contagion fears ripple through the sector, Sinic Holdings Group Co. has received a demand to repay some debt after missing two local interest payments.

A creditor of the Chinese developer is demanding repayment of $75.4 million in outstanding principal and accrued interest, after the firm failed to repay 38.7 million yuan ($6 million) of interest on two onshore financing arrangements on Sept. 18, according to a Hong Kong stock exchange filing dated Sept. 30.

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Trading in Shares Suspended (9:37 a.m.)

China Evergrande shares have plunged 80% this year and its bonds have tumbled to levels that suggest investors are bracing for a default. Evergrande has a market value of HK$39.1 billion.

Shares of the developer’s other unit, China Evergrande New Energy Vehicle Group Ltd., haven’t been suspended. The stock was little changed in Hong Kong trade after earlier falling as much as 8.3%.  

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Markets Await Clues on Bond Tied to Evergrande (8:35 a.m.)

Any failure to pay Jumbo Fortune’s note may also pose a risk of cross-default for Evergrande’s other bonds, according to Bloomberg Intelligence analyst Daniel Fan. Creditors of the Jumbo note could potentially ask the trustee to declare a formal default if they achieve a minimum threshold of investors, and that could trigger holders of other dollar bonds to do the same, he said.

Cross-guarantees have been a problem for China over the past decade with the rise of shadow banking, said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “There is little ability to find out the size of the problem until there is a debt blowup and creditors worry about not getting paid.”

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China Will do Everything it Can to Ring-Fence Risk (8:28 a.m.) 

China has signaled it will do everything it can to ring-fence Evergrande, while showing little interest in a direct bailout of the developer. That doesn’t bode well for bondhholders – both onshore and abroad — looking for some kind of rescue from the Chinese government. 

Beijing has stepped up efforts to limit fallout, having dispatched top financial regulators to nudge banks to ease credit for home buyers and support the property sector. They also bought out part of Evergrande’s stake in a struggling bank to limit contagion. Over the past 10 days, the central bank has pumped 790 billion yuan into the financial system.

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Evergrande dollar bond interest deadlines:

DOLLAR BONDS COUPON DUE DATEAMOUNT(MILLION DOLLARS)
EVERRE 8.25% due 2022Sept. 2383.53
EVERRE 9.5% due 2024Sept. 2945.17
EVERRE 9.5% due 2022Oct. 1168.88
EVERRE 10% due 2023Oct. 1142.5
EVERRE 10.5% due 2024Oct. 1136.75