Evergrande: China tells local govts to prepare for developer's potential collapse - reports

Beijing on Thursday asked local governments to prepare for a potential collapse of China Evergrande Group, according to reports from newswires Dow Jones and Bloomberg.

Local developers may be asked to take over Evergrande projects, sources were saying.

Earlier Chinese regulators called on the world’s most indebted property developer to avoid a near-term default on its offshore, dollar-denominated bonds and communicate more proactively with bondholders, Bloomberg reported.

Evergrande is due to make an US$83.5mln interest payment on its dollar bonds today, with another US$47.5mln due next week. The company has 30 days to make the dollar bond payments before being labelled a defaulter.

The China government was said to be getting ready to nationalise Evergrande and split it into three separate companies to be folded into various state-owned enterprises, according to a story on Asiamarkets.com overnight.

Yesterday, Evergrande said it had agreed a deal over a Yuan bond payment due this week, with its main operating unit, Hengda Real Estate Group, with plans to make the payment today for an amount estimated to be just under US$36mln.

Local and global financial markets continue to be spooked about the potential fallout from a total collapse of the company due to the size and spread of its US$313bn of liabilities, with US$850mln of total coupon payments due this year. 

Commodities markets have been rocked by the expected reduction in demand that would result from a Chinese property market crises, while the spill-over to global financial markets could come from the US$7.4bn of its US-denominated debt held by overseas investors, with investors including Ashmore Group (LSE:ASHM), Credit Suisse, Allianz and BlackRock (NYSE:BLK).

This week Credit Suisse told media that direct investments in Evergrande bonds would make up just 0.6% of total fund assets, but the exposure to the Chinese real estate market in other emerging-market and Asian bond funds to the bank had “corresponding shares of total fund assets made up between 0.2 and 28.8%”.

However, with the People’s Bank of China injecting 90bn yuan (US$13.9bn) of liquidity into the banking system to ease worries, Evergrande shares rallied 17% in Hong Kong, helping lift the Hang Seng index to a 1% higher finish today, with the Shanghai Composite up 0.4%. 

Story by ProactiveInvestors