Quotes: China Evergrande nears interest payment deadline

plenum AG

23/09/2021 07:48

(Adds more from Plenum's Long Chen; updates first paragraph)
    HONG KONG, Sept 23 (Reuters) - China Evergrande Group
 3333.HK  will make it a top priority to help retail investors
redeem their investment products sold by the indebted property
giant, its chairman said, as uncertainty looms over interest
payment due for a dollar bond on Thursday.

    CARLOS CASANOVA, senior economist for Asia at Union Bancaire
Privee, Hong Kong
    "In my opinion it shows they are closer to reaching an
agreement with the government as to how they should go about
this managed restructuring.
    "Wealth management products are important for two reasons.
Of course it's a grey area and so we don't have visibility as to
how big the risks could be in that sphere. But more importantly
it has translated into quite a bit of social unrest. We've seen
protesters gathering outside of Evergrande's headquarters over
the past couple of months over unpaid wealth management
products.
    "And so while it's by no means the government's goal to send
a message that returns on wealth management products are
guaranteed ... it is important from a social stability
standpoint to make sure that Chinese retail investors get their
money back and that homebuyers get their homes delivered.
    "So in my opinion it signals they are closer to being in a
position where they have an agreement about how they should
manage the situation."
    
    EZIEN HOO, credit analyst at OCBC Bank in Singapore
    "We think there are two parts to this: One, the nature of
investors and, two, how far the investors sit from the assets.
    "Assuming this situation goes the way of a debt
restructuring ... we think the retail investor nature of the
wealth management products (WMP) would be prioritised for social
stability.
    "This is especially more so as we understand that the media
had reported that WMP investors also consist of employees of the
company. In our view, this would be despite of the actual legal
standing of the WMPs. It is still unclear to us on the exact
terms of such products (for example: whether such products are
outright guaranteed by Evergande's development projects). We did
not find much disclosures on the WMPs in the company's
consolidated audited financials.
    "With regards to the bonds denominated in dollars
(presumably this is what foreign bondholders mostly are invested
in), dollar bonds are issued out of offshore entities who sit
further away from the assets located in China and would be
subordinated to lenders onshore. Being far from assets would
mean lower bargaining power versus other lenders closer to the
assets, especially lenders who have direct claims on assets.
    "Aside from this, we would imagine many of the holders of
the dollar-bonds are institutional funds and exchange traded
funds that are managed by sophisticated investors, where matters
at Evergrande leading up to its current bout of liquidity stress
has been well telegraphed for at least a few months now."
    
    WEI-LIANG CHANG, macro strategist at DBS Bank in Singapore
    "Wealth management products are marketed to retail
investors, and there is likely political pressure on the company
to ensure a fair settlement. On the other hand, professional
investors in the bonds are expected to have done their due
diligence, and thus see no special treatment. 
    "The priority of creditors in a restructure should not be
impacted, and will depend on the legal clauses on the bonds and
wealth products."
    
    BERND HARTMANN, Head CIO Office at boutique private bank VP
Bank
    "China's political leadership is likely to be aware of the
seriousness of the situation. The aim could be to break up the
Evergrande Group. Evergrande is already selling its good bits.
In this way, the government is continuing on its already chosen
path of breaking up monopoly structures in the real estate
market as well.
    "We assume that the Chinese leadership will intervene, but
attention will be paid to the exact form it takes. The
authorities will try to prevent a spillover into other sectors
by breaking up Evergrande to release liquidity. At the same
time, Beijing is likely to try to protect private property
buyers who have already paid for their flats and are making
mortgage payments but are waiting for completion. The government
is thus likely to ensure the completion of real estate projects.
    "A sale to private companies has already failed. It is
conceivable that interventions will be made through the
Guangdong provincial government instead of the central
government. The greatest damage would thus fall on the
creditors.
    "A major impact would be a long and severe slump in property
prices and sales. This must be averted. In the short term, China
could deviate from its actual course of cooling the real estate
market through stricter lending."
    
    LONG CHEN, partner at Plenum, an independent research
platform, in Beijing
    "China has experienced several high-profile bank failures
and corporate bankruptcies over the past three years. The
financial risks from Evergrande do not look much bigger than
those in the failure of Baoshang Bank or HNA. Evergrande's
dollar bond is trading at below 30c so it is not a surprise at
all to see a default.
    "The difference this time is that Evergrande owes 600,000
apartments to the buyers with a total value of 200 billion yuan
($30.94 billion), and over 600 billion yuan to the construction
firms and suppliers.
    "The top task is to get the apartments built, and the
government has multiple options to get that done. It is equally
important to avoid a nationwide property collapse and that
requires a shift of policies, which are too hawkish at the
moment.
    "Nobody is interested in bailing out Evergrande but nobody
wants a crisis either. The moment Evergrande falls, the easier
it will be for Beijing to ease policies. To put it this way: it
will be more like a 'whatever it takes' moment rather than a
'Lehman moment'. The market will feel more pains before that,
but not after." 
        


($1 = 0.1547 Chinese yuan renminbi)

 (Reporting by Andrew Galbraith, Tom Westbrook, Anshuman Daga,
Clare Jim and Cheng Leng; Editing by Christopher Cushing)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))