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Evergrande tries to stop bond rout from becoming downward spiral

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China Evergrande Group attempted to revive confidence in its finances, after fears of a cash crunch sent the property giant's onshore bonds to record lows and turned its stock into one of the worst performers globally.

[BEIJING] China Evergrande Group attempted to revive confidence in its finances, after fears of a cash crunch sent the property giant's onshore bonds to record lows and turned its stock into one of the worst performers globally.

In a rare unscheduled exchange statement on Friday night, the world's most indebted real estate company said its operations were "stable and healthy". It added that total debt and financing costs had dropped since March and that it hadn't missed an interest or principal payment since its founding 24 years ago.

Evergrande is battling resurgent concerns about its US$120 billion debt pile after reports last week that the company warned Chinese officials of a potential liquidity squeeze and cascade of defaults. Billionaire Hui Ka Yan's developer has dismissed the reports as based on rumors and "fabricated" documents, yet creditor angst was so extreme on Thursday that several Chinese banks held emergency meetings to assess their exposure.

The episode comes at a critical time for Evergrande, which recently launched a nationwide sales promotion and needs to maintain confidence in its creditworthiness if it wants customers to put down large deposits on homes that may take years to complete. The developer will also have to repay about US$5.8 billion of bonds and loans over the next two months, raising the prospect of sharply higher refinancing costs if investors balk.

In one positive development announced by Evergrande late Friday, the company won approval from Hong Kong's stock exchange to spin off its property management unit, paving the way for it to raise much-needed capital. The signoff was reported earlier in the day by Bloomberg.

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Investors across Asia are watching Evergrande closely after losses in the company's offshore notes spread to high-yield debt around the region last week. The developer is not only Asia's biggest junk bond issuer, it's also one of the most systemically important companies in China, with 293 million square metres of land reserves and projects in 237 cities as of the end of last year.

The biggest near-term worry surrounding Evergrande relates to an agreement the company struck with some of its largest investors. It gives them the right to demand their money back if Evergrande fails to win regulatory approval for a backdoor listing on the Shenzhen stock exchange by Jan 31. The repayment could amount to 130 billion yuan (S$26.22 billion), and at least one of the investors has signalled it would be unwilling to extend the deadline.

Evergrande has said it won't raise new funds through the listing, but the transaction could allow the company to achieve a higher valuation and thus easier access to future financing.

Chinese regulators have yet to comment publicly on Evergrande's latest troubles, but the government could play a decisive role in the company's future. Some analysts have speculated Evergrande has failed to get a green light for its listing plan because policy makers are trying to tame sky-high home prices and restrain fundraising by developers. Whether authorities would allow Evergrande to run into serious financial difficulties is now one of the key questions facing creditors, shareholders and customers.

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