(Bloomberg) — Holders of China Evergrande Group’s dollar bonds have been left on edge after the distressed developer gave no signs of meeting a Thursday deadline for an $83.5 million coupon payment. European banks are trying to reassure investors that their exposure is limited, while staff at the firm’s electric vehicle business haven’t been paid.
Evergrande’s stock and bonds traded lower following a 17% rally Thursday. The shares dropped 13% to HK$2.33 by 2:39 p.m. in Hong Kong. China Evergrande New Energy Vehicle Group plunged as much as 23%. Evergrande’s 8.25% dollar bond due 2022 was down 2.4 cents on the dollar at 29.6 cents, according to Bloomberg-compiled prices. It jumped the most in 18 months the day before.
Here are the latest developments at the Chinese property giant:
Europe’s Direct Exposure Is ‘Limited,’ Lagarde Says (2:07 p.m. HK)
European Central Bank President Christine Lagarde said direct exposure to Evergrande in Europe, and the euro zone in particular, is “limited.”
“We are monitoring and I had a briefing earlier on today because I think that all financial markets are interconnected,” Lagarde said in an interview with CNBC. “For the moment, what we are seeing is China-centric impact and exposure.”
Her comments chime with those of Federal Reserve Chair Jerome Powell. He said Wednesday there is little direct U.S. exposure to the company’s debt, but that the situation could impact global financial conditions.
Live Q&A: Join us on Sept. 28 at 11 a.m. HK for a panel discussion on Evergrande, where Bloomberg Opinion’s Shuli Ren, Bloomberg News Team Leader for China Credit Rebecca Choong Wilkins, and Bloomberg Intelligence Credit Analyst Daniel Fan will take your questions in a session moderated by Asia Senior Editor for Finance David Scanlan.
PBOC Keeps Liquidity Flowing Amid Evergrande Woes (11:53 a.m. HK)
The People’s Bank of China continued to pump cash into the financial system amid concerns that contagion from Evergrande will affect market liquidity.
It has injected a net 460 billion yuan ($71 billion) of short-term cash into the banking system in the past five working days, including 70 billion on Friday.
Housing Sector Risks Falling into Bear Market, Citi Warns (11:46 a.m. HK)
Home prices are at risk of “meaningful downside” regardless of what happens to Evergrande, Citigroup analysts said in a note titled “A Bear Market in Chinese Property.”
“It seems clear that even in an orderly restructuring, the property sector in China is likely to face downside pressures,” wrote analysts including Dirk Willer in a note dated Thursday. “While authorities try to limit lower real estate prices due to fire sales by Evergrande by implementing price floors, price controls typically do not work.”
Lukewarm Land Sales Signal Impact of Property Crackdown (11:28 a.m. HK)
The property crackdown and crisis at Evergrande are showing more signs of cooling the market after land auctions in several cities received tepid interest. Nine out of 10 land parcels in Hangzhou, home to Alibaba Group, went unsold during the second batch of centralized land bidding recently, the Securities Daily reported. In January all four parcels in the eastern city were auctioned at the upper end of prices set by local authorities.
Evergrande Bondholders Say Yet to Receive Interest (10:15 a.m. HK)
Three holders of a China Evergrande dollar bond with a coupon that was due Thursday said they hadn’t received payment as of 8 a.m. Friday Hong Kong time. There was no immediate reply from Evergrande to questions about the interest payment. The holders asked not to be identified because the matter is private
Evergrande Remains Silent on Bond Interest Payment (8:35 a.m. HK)
The lack of any announcement from Evergrande concerning an $83.5 million interest payment that was due Thursday on a dollar bond adds to the uncertainty surrounding the developer’s struggles.
Asia’s largest issuer of junk-rated dollar bonds has so far made no stock exchange filing or public announcement about the coupon. Evergrande, the world’s most indebted developer, has a 30-day grace period to make the payment before any event of default could be declared. Investors have been pricing in a significant chance of a missed payment or getting a small fraction of face value in any potential restructuring.
China Urges Evergrande to Avoid Default, Repay Retail Investors
Financial regulators in Beijing issued a broad set of instructions to Evergrande, encouraging the embattled developer to take all measures possible to avoid a near-term default on dollar bonds while focusing on completing unfinished properties and repaying individual investors.
In a recent meeting with Evergrande representatives, regulators said the company should communicate proactively with bondholders to avoid a default, but didn’t give more specific guidance, a person familiar with the matter said.
There’s no indication that regulators offered financial support to Evergrande for the bond payment, and it’s unclear whether officials believe the company should eventually impose losses on offshore creditors. Policy makers are trying to learn more about who holds Evergrande’s bonds, the person said, asking not to be identified discussing sensitive information.
Banks Race to Assure Markets Evergrande Exposure Is Limited
European bankers have spent the past few days reassuring investors, clients and regulators about any fallout from Evergrande as questions swirl about the world’s most-indebted property developer.
Credit Suisse Group AG, which underwrote the most Evergrande bonds among international banks in the last 10 years, issued statements showing its asset management unit’s funds didn’t hold much of the developer’s debt. It also reached out to shareholders about the bank’s own minimal level of exposure, according to a person briefed on the discussions.
UBS Group AG’s risk is “immaterial” and limited to the execution of collateral calls on margin loans, Chief Executive Officer Ralph Hamers said Thursday. That came a day after HSBC Holdings Plc’s Noel Quinn told a Bank of America Corp. conference that he’s not worried about the bank’s direct links to Chinese real estate.
Evergrande’s EV Unit Has Stopped Paying Staff, Factory Suppliers
China Evergrande’s electric-car unit missed salary payments to some of its employees and has fallen behind on paying a number of suppliers for factory equipment, according to people familiar with the matter, evidence the stricken property developer’s debt woes are having an impact beyond its core business.
The cash flow difficulties mean China Evergrande New Energy Vehicle Group Ltd. will likely miss its target to start mass deliveries next year considering trial production of electric vehicles at its factories in Shanghai and Guangzhou has been dialed back, the people said, asking not to be identified as they’re not authorized to speak publicly.
Most employees at Evergrande NEV are paid at the start of every month and again on the 20th, however for some mid-level managers, the second installment for September hasn’t arrived, the people said. Several equipment suppliers, meanwhile, began withdrawing their on-site personnel from the Shanghai and Guangzhou sites as early as July after payments for machinery in Evergrande NEV’s factories weren’t made.
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