China Evergrande Affiliate Defaults on $300 Million Private Dollar Bonds... $17 Billion Dollar Bonds Face Default Risk

[Image source=EPA Yonhap News]

[Asia Economy Reporter Kim Suhwan] A related company of Evergrande (恒大·Evergrande), which is burdened with over 300 trillion won in debt and facing a severe liquidity crisis, failed to repay a privately placed dollar bond worth about 300 billion won that matured on the 4th.

Since Evergrande is the guarantor of this bond, concerns have grown that this could trigger a chain default of Evergrande’s publicly offered dollar bonds amounting to about 17 trillion won.

According to the economic media Caixin on the 8th, Jumbo Fortune, a partner company of Evergrande based in Hong Kong, issued dollar bonds worth $260 million (about 310 billion won) that matured on the 4th but were not repaid.

Jumbo Fortune is a joint management company of Evergrande, with Evergrande Real Estate, a subsidiary of Evergrande, holding some shares.

Evergrande guaranteed the bonds issued by Jumbo Fortune.

According to the contract, unlike other publicly offered dollar bonds, this privately placed dollar bond does not have a grace period except in special circumstances such as financial system disruptions.

A bond official told Caixin, "Evergrande ultimately did not express any intention to repay," and "communication between the bondholders and Evergrande has been consistently poor."

Previously, Evergrande failed to pay interest on dollar bonds amounting to $83.5 million (about 99.6 billion won) and $47.5 million (about 55.7 billion won) scheduled on the 23rd and 29th of last month, respectively.

However, those bonds are publicly offered bonds with a 30-day grace period, so Evergrande has not officially defaulted yet. But the non-repayment of this related company’s privately placed dollar bond, which has no grace period, effectively means it is in default.

On the 8th, bondholders sent an official letter demanding debt repayment from Evergrande and plan to send a certified mail separately.

According to Hong Kong laws, if the debtor receives a certified mail and fails to repay the debt within 21 days, the bondholders can file for bankruptcy to forcibly recover some or all of the bonds.

Compared to the total debt scale of about 350 trillion won, the bond worth about 300 billion won involved this time is relatively small.

However, if Evergrande cannot resolve this issue immediately, a large-scale chain default could occur, leading the market to assess the current situation as quite serious.

Evergrande’s total debt amounts to about 2 trillion yuan (about 370 trillion won) in yuan, most of which was raised in mainland China.

The offshore issued dollar bonds are divided into publicly offered bonds and privately placed bonds, with 10 publicly offered bonds remaining worth $14.2 billion (about 17 trillion won) and 6 privately placed bonds worth $2 billion (about 2.4 trillion won).

The issue of non-repayment of privately placed dollar bonds has further increased Evergrande’s bankruptcy risk.

The contracts of the 10 publicly offered dollar bonds include a clause that if Evergrande or its affiliates fail to repay debts exceeding $20 million, those bonds will also be considered to have triggered a cross default.

In other words, if the Jumbo Fortune bonds guaranteed by Evergrande are finally declared in default, regardless of maturity, all 10 publicly offered dollar bonds worth about 17 trillion won will be considered to have defaulted in a chain. This means the Evergrande crisis could rapidly escalate into an uncontrollable situation.

Evergrande plans to resolve the liquidity crisis by sequentially disposing of key assets such as bank holdings and affiliate shares. However, if bankruptcy proceedings begin due to chain defaults, key assets will be frozen, potentially disrupting Evergrande’s business normalization plans.

Caixin pointed out, "Privately placed dollar bonds, which were relatively minor at the group level, are emerging as a stumbling block in Evergrande’s future asset disposal."

However, Evergrande is reportedly pursuing a plan to sell 51% of its real estate management affiliate Evergrande Property for about 40 billion Hong Kong dollars (about 6.1 trillion won). If the deal is completed, it is expected that Evergrande will try to repay the Jumbo Fortune bonds first to avoid the worst chain default scenario.

Since reports emerged on the 4th that Evergrande would sell Evergrande Property to another real estate developer, Hopson Development, Evergrande’s stock has been suspended from trading on the Hong Kong stock market.

As of the morning of the 8th, Evergrande has not issued an official statement regarding this joint debt default issue.

This content was produced with the assistance of AI translation services.