Evergrande makes deal with domestic bondholders to avoid default

Embattled Chinese property titan Evergrande has said it had agreed a deal with domestic bondholders that should allow the conglomerate to avoid missing one of its interest payments and avoid default, but its deeper debt burden remains.

Financial markets have been hit this week over fears that the sprawling firm could collapse, with the potential to pulse through the world's second-biggest economy and possibly beyond.

Chinese authorities have remained conspicuously silent over Evergrande's woes, allowing rare protests from despairing investors and leaving analysts guessing over Beijing's plans to mop-up any spillover from the developer's demise.

In a statement to the Shenzhen stock exchange on Wednesday, Evergrande's property unit Hengda said it had negotiated a plan to pay interest due on its 2025 bond, worth 232 million yuan ($35.9 million).

Evergrande has admitted facing "tremendous pressure" as it tackles a debt pile of more than $300 billion, and has warned that it may not be able to meet its liabilities.

Yet founder Xu Jiayin, a billionaire once counted as Asia's richest man, on Tuesday said the company will "step out of the darkest moment soon".

The group has made no mention of its repayments on interest for an offshore bond due on Thursday. While that leaves open the chance it could miss payment on that, though it would still have a 30-day grace period before it is deemed in default.

In Wednesday's statement, Hengda said investors "who bought and held the bonds" before September 22, 2021 "are entitled to interest paid this time".

Evergrande did not reply to AFP requests for comment.

Analysts said the repayment will go some way to soothing anxious markets in the short term.

But "for confidence to return more meaningfully, it will need the market to see sight of the broad restructuring plans for Evergrande", Gary Dugan, chief executive officer at the Global CIO Office, told Bloomberg News.

The Evergrande crisis has triggered protests outside a number of the company's offices in China by investors and suppliers demanding their money — some of whom say they are owed as much as $1 million.

Waiting on Beijing 

Given the company's debt pile, analysts and investors have speculated that the government will likely step in with some kind of help for the corporate giant, although Beijing has so far remained mute on the crisis.

Meanwhile, the vagueness of the filing — which did not give details on how much it would pay and when — left some warning that there remained a lot to overcome.

The payment announcement "is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring." said Jeffrey Halley, an analyst at OANDA.

While predominantly a developer, Evergrande — which employs 200,000 people, has a presence in more than 280 cities and claims to indirectly generate 3.8 million Chinese jobs — has been on a buying spree for more than a decade.

READ MORE: How the Chinese Evergrande crisis affects global markets

The company has hired experts including financial services firm Houlihan Lokey — which advised on the restructuring of Lehman Brothers when it went under during the global financial crisis — as it tries to avoid a collapse.

State regulators have also dispatched a team of financial advisers to assess the company, according to reports.

News of the deal provided support to equities Wednesday, with Shanghai leading most Asian markets up, even as traders returned from a long weekend break to play catch up with Monday's global rout.

Can banking system tackle a shock?

Abdul Abiad, director of macroeconomic research at the Asian Development Bank, told reporters at a virtual briefing that China's "banking system's capital buffers are strong enough to absorb a shock even of Evergrande's size, should it materialise".

This week the central bank pumped some $14 billion into financial markets to soothe worries about a potential liquidity squeeze off the back of the Evergrande crisis.

"It warrants careful monitoring because housing is an important component of the Chinese economy... housing makes up a substantial portion of household wealth so obviously if the property sector is impacted that could have knock-on efforts for the broader Chinese economy," Abiad added.