Although markets exhaled a sign of relief upon news that Evergrande had come to an agreement with creditors regarding Thursday’s scheduled interest payment, the coast for the heavily-indebted real estate developer is not yet clear.
Markets around the globe were ecstatic to learn that Evergrande vaguely confirmed it will be making a 232 million yuan interest payment on September 23, sending futures significantly higher. However, the euphoria likely won’t last long, because the real estate developer still has a lot more debt obligations due.
For starters, Thursday’s payment suggests that Evergrande came to a consensus with local bondholders to postpone payments without declaring the move as a default. “Evergrande might have arrived at some kind of standstill with onshore holders,” said Bloomberg Intelligence credit analyst Daniel Fan. “They might have asked them not to act, pending for negotiation for a rescheduling or something of that sort.”
However, the real estate developer still faces major interest obligations to offshore bondholders — to the tune of $83.5 million come September 23 on its 8.25% bonds due in 2022 to be exact. And, with those bonds falling 0.7 cents to trade around 24.5 cents, it suggests that creditors are still anticipating a major default.
The reality is, Evergrande’s problems are just beginning, because the company still owes billions of dollars to onshore and offshore creditors in the next coming years and months. In just the next three months alone, the company owes $669 million in interest payments before the end of the year, in addition to the $83.5 million in coupon payments due September 23.
In short, Evergrande just does not possess the means to continue making payment-by-payment arraignments with its numerous creditors until its debt fiasco is eventually resolved. Therefore, Evergrande’s sanguine announcement that it has come to a compromise regarding Thursday’s interest payment is only procrastinating on the inevitable.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.