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Evergrande Home Debt Deal Calms Speedy Contagion

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© Reuters. FILE PHOTO: A vehicle drives past unfinished residential buildings in Evergrande Oasis, a residential complex developed by the Evergrande Group in Luoyang, China, Sept. 16, 2021. REUTERS / Carlos Garcia Rawlins / File Photo

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(Corrects billion in millions in the 6th paragraph)

By Anshuman Daga and Andrew Galbraith

SINGAPORE / SHANGHAI (Reuters) – China Evergrande on Wednesday agreed to make interest payments on a domestic bond while the Chinese central bank poured cash into the banking system to allay fears of impending contagion from the debt-laden property developer.

Evergrande, Asia's largest junk bond issuer, is so entangled in China's economy in general that its fate has held global equity and bond markets in suspense as late debt payments could trigger cross-defaults.

Many financial institutions have exposure to Evergrande through direct loans and indirect equity holdings, while defaults will also trigger sell-offs in the high-yield credit market.

To reassure investors, the People & # 39; s Bank of China injected 90 billion yuan into the banking system, signaling support from markets poised for what is likely to be one of the largest debt restructurings in China of all time.

Evergrande is working hard to avoid defaulting on a number of bonds due due this week, and its main entity, Hengda Real Estate Group, said Wednesday it has a coupon payment due Thursday on its 5.8 that it traded in Shenzhen % Bond from September 2025 "solved". , about "private negotiations".

It did not specify how much interest would be paid or when, nor did Hengda mention Evergrande's other urgent debts.

Evergrande did not immediately respond to questions about his business or his intentions.

But engaging with bondholders, a common way to avoid defaults, in addition to Chairman Hui Ka Yuan's vow this week that Evergrande would "come out of its darkest moment," cheered investors and generally calmed markets.

"These events seem to indicate that the company is taking control of the situation and is trying its best to find a solution with the creditors," said Singapore-based Dexter Tan, a senior fixed income analyst at Bondsupermart.com.

Evergrande, which epitomized the loan-to-build business model and was once China's top-selling developer, also has an interest payment of $ 47.5 million on bonds next week.

"We don't have a clearer picture of how Evergrande paid off its onshore coupon," said Chuanyo Zhou, a credit analyst with Singapore-based Lucror Analytics.

"It doesn't look like a cash payment. It can still miss the offshore bond coupon due tomorrow."

Evergrande's Hong Kong shares went offline due to a holiday, but rose 40% to EUR 0.38 ($ 0.45) in Frankfurt.

Its dollar bonds, due next year and 2024, stayed below 30 cents a dollar.

In the broader market, the US dollar slipped and rose in Asian and European trade. (MKTS / GLOB)

DISMANTLE

Analysts have downplayed the risk of a collapse threatening a "Lehman moment" or a liquidity crisis that freezes the financial system and spreads across the globe.

Only about $ 20 billion of the outstanding $ 305 billion debt is owed overseas, according to Refinitiv data.

The risk of failure remains high, however, especially if offshore bond investors are less willing to cut deals than those in China, and the effects have already started to shake the real estate market of the world's second largest economy.

"Developers there have long claimed that the success of their business depends on three factors: high sales, high gross profits, and high debt," said Michael Pettis, a non-resident senior fellow at the Carnegie-Tsinghua Center for Global Policy, in a blog post.

"But all of these proverbial carriages collapse as the effects of the Evergrande crisis spread."

In addition, there is growing political pressure to increase the anger of private investors with their savings in Evergrande real estate or wealth management products.

Asked at a regular daily briefing on Wednesday whether China would take action to intervene, Foreign Ministry spokesman Zhao Lijian only referred to the "relevant departments".

Despite the risks, some funds have increased their positions in recent months. BlackRock (NYSE 🙂 and investment banks HSBC and UBS are among the biggest buyers of Evergrande's debt, Morningstar https://www.morningstar.hk/hk/news/215418/whos-buying-evergrandes-bonds.aspx?lang= en-hk data and a blog post shown.

Other bond holders are UBS Asset Management and Amundi, Europe's largest asset manager.

($ 1 = 6.4665) ($ 1 = 0.8524 euros)

(This story corrects billions to millions in paragraph 6)

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