China's Evergrande Makes Last Minute Interest Payment On Dollar Bond, Avoiding Default

In a surprise 11th hour development, China Evergrande made an overdue interest payment to offshore bondholders, the state-owned Securities Times reported Friday, an unexpected move that allows the property company to postpone - if not avoid - a default.

The Chinese property developer sent $83.5 million to the trustee for the dollar bonds, and that financial institution will in turn pay bondholders, reported the Securities Times which is run by the Communist Party’s flagship People’s Daily newspaper. As reported earlier, this weekend was the deadline for a 30-day grace period before bondholders could send a notice of default to the company after it failed to make the interest payment on about $2.03 billion of dollar bonds on Sept. 23.

A default by Evergrande - which is China’s 2nd biggest developer and its most indebted, and which late last week made a payment on onshore bonds - would have spiraled into the biggest corporate default in Asia, as it would also enable creditors to declare cross-defaults on some of Evergrande’s other debts. However, with its liquidity effectively frozen, its real estate sales plunging 97%, and its asset sales attempts a dead end, while Evergrande may have kicked then can this time, the company - which has the equivalent of more than $300 billion in total liabilities, including some $89 billion in interest-bearing debt as of the end of June - is still facing a virtually certain default in the coming weeks when many more coupons and maturities come due.

Most international bondholders had expected Evergrande to fail to make its dollar bond payments before the end of the grace period. The company has also skipped other coupon payments in the past few weeks, and has outstanding dollar debt with a total face value of about $20 billion. Advisers to international bondholders said this month they had made little progress in their efforts to engage with Evergrande.

On Wednesday, however, the Shenzhen-headquartered group said in a regulatory filing that it will “use its best effort to negotiate for the renewal or extension of its borrowings or other alternative arrangements with its creditors.”

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