Evergrande enters another payment grace period as Fed warns of China real estate risk

Evergrande, China and the world’s most indebted property developer, continues to hop from one grace period to another on payments for various bonds, narrowly avoiding default. The latest news, as reported by Bloomberg, is that another 30-day grace period has apparently begun after two holders of dollar notes did not receive payments from an Evergrande unit when they were due on November 6.

• Evergrande narrowly averted default two times in late October, surprising analysts by completing one $83.5 million payment to international bondholders, and paying $45 million in interest just before a 30-day grace period ended.
• The company’s bondholders still expect many payments in the near future, including more than $148 million in coupon payments due tomorrow that were originally set to be paid on October 11. The Financial Times has a helpful article detailing all of Evergrande’s bond and interest payments due through 2022, totaling $8.1 billion.
• Evergrande “raised around $145 million in recent days” by selling a roughly 5.7% stake in HengTen Networks Group, the Wall Street Journal reports.

“Some risk to the U.S. financial system”

Two months after Jay Powell, the chair of the U.S. Federal Reserve, described the Evergrande situation as “very particular” to China, the Fed’s semi-annual Financial Stability Report has raised concerns about “highly indebted corporations, especially in the real estate sector” in China, the Financial Times reports.

• “In its report, the central bank cautioned that highly indebted emerging market economies could also pose a risk to financial stability, especially in the event of a ‘sudden and sharp’ tightening of financial conditions,” the FT says.

China’s property market stress goes far beyond Evergrande, and while the Chinese market’s most indebted developer has unexpectedly avoided default, four smaller competitors — Modern Land, Sinic, China Properties Group, and Fantasia Holdings — have defaulted since September.

• Is Kaisa Group next? Reuters reports, “Bonds issued by developers slumped after sources said Kaisa, which was the first Chinese property firm to default back in 2015, told a meeting on Monday with a government think-tank and some of its peers and the country’s banks and that it needed help to pay loans, workers and suppliers.”

See also:

• Chinese junk bond yields top 25% as property-market strains intensify / WSJ (paywall)
  “Selloff in high-yield Chinese bonds shaves about a third of bondholders’ wealth in six months.”
• China tightens use of property proceeds as Fed sees risks / Bloomberg (paywall)
  “A growing number of cities in China have tightened supervision over the use of presold property proceeds, a move likely to deepen the cash crunch at many of the country’s real estate developers that have relied on the inflows as a key source of funding.”
• China struggles to regulate house prices despite glut of controls / FT (paywall)
• Update: The pros and cons of a property tax / The China Project