PBOC Vows to Ensure ‘Healthy’ Property Market: Evergrande Update

(Bloomberg) -- China Evergrande Group is facing a fresh dollar bond interest payment test Wednesday, less than a week after it missed an initial deadline to deliver the coupon on another offshore note. 

The developer’s list of debt obligations may be getting even longer, after some holders maintained it’s a guarantor of a separate $260 million bond that matures Sunday. The investors are forming a committee to press their claims in case the note, which was issued by a joint venture of the company’s key onshore unit, goes into default. 

In its latest asset disposal, Evergrande is poised to lose control of its most valuable financial unit as it agreed to further cut its stake in Shengjing Bank Co., raising $1.5 billion by selling shares of the regional lender to a state-owned firm in northeastern China. 

Evergrande’s shares jumped as much as 16.9% Wednesday, for a three-day gain of around 32%. The developer’s dollar bond due in March 2022 fell 0.9 cent on the dollar to 25.3 cents. 

Key Developments:

• Evergrande Bond Bills Are Piling Up as Latest Coupon Comes Due
• Creditors Said to Claim Evergrande on Hook for Bond Due Sunday
• Wall Street Banks Questioned by Fed On Evergrande Exposure
• China Shouldn’t Relax Property Curbs for Some Cos’ Woes: Daily
• Evergrande to Raise $1.5 Billion Selling Stake in Regional Bank
• Evergrande Crisis Highlights Funding Risks for Other Developers

Japan’s GPIF Won’t Invest in China’s Sovereign Debt (10:07 a.m. HK)

Japan’s Government Pension Investment Fund, the world’s largest pension fund, said it won’t include yuan-denominated Chinese sovereign debt in its portfolio.

The decision comes as FTSE Russell is set to start adding Chinese debt to its benchmark global bond index, which the GPIF follows, from October. The pension fund will instead use as its benchmark a version of the World Government Bond Index, which excludes Chinese government bonds, Hiroshi Nagaoka, an official at the pension fund, told Bloomberg News. 

China’s DRC Bank Slumps in Hong Kong Debut as Investors Weigh Property Exposure (9:35 a.m. HK)

In a sign of the financial industry’s vulnerability to the crisis at China Evergrande, shares in Dongguan Rural Commercial Bank Co. plunged on their debut as it became the first bank to list in Hong Kong in almost a year amid the Evergrande crisis.

DRC Bank listed its exposure to the real estate sector as a risk factor in a preliminary prospectus, saying that the industry accounted for 8.8% of its commercial loans as of March 31.

Evergrande to Raise $1.5 Billion Selling Stake in Regional Bank (9:22 a.m. HK)

The company is poised to lose control of its most valuable financial unit after agreeing to sell a bank stake for about 10 billion yuan ($1.5 billion), as it scrambles to offload assets to address its debt crisis. 

Evergrande agreed to sell about 1.75 billion non-publicly traded domestic shares in Shengjing Bank Co. at 5.7 yuan apiece, it said in a filing to the Hong Kong stock exchange. The purchaser is state-owned Shenyang Shengjing Finance Investment Group Co., and the transaction requires relevant approvals. 

China Shouldn’t Relax Property Curbs for Some Cos’ Woes: Daily (9:07 a.m. HK)

China should not loosen its property tightening policies just because some real estate developers are running into trouble, the state-run Economic Daily said in a commentary.

The property market in general remains stable with no major changes to industry fundamentals, the paper said. The debt crisis at some companies and land auction failures in some cities require high attention to avoid risk contagion, but they are just individual cases, it added. 

Evergrande Crisis Highlights Funding Risks for Other Developers (9:00 a.m. HK)

China Evergrande’s liquidity crisis is putting the spotlight on the health of China’s property sector, particularly junk-rated firms.

Such companies are facing increasingly tough conditions. Borrowing costs have surged amid fears of an Evergrande failure, with the yield on an index of dollar-denominated junk bonds climbing to about 15%, the highest in about a decade. Strict rules on leverage mean companies need to reduce debt, while measures to cool the housing market are damping sales. 

Evergrande Bond Bills Are Piling Up as Latest Coupon Comes Due (7:50 a.m. HK)

The world’s most indebted developer needs to pay a $45.2 million coupon on Wednesday for a dollar bond that matures 2024, Bloomberg-compiled data show. The payment has a 30-day grace period before default could be declared, according to the note’s offering memorandum. 

Separately, Evergrande has made no public statements on an $83.5 million coupon that was due Sept. 23 and at least several holders had said they hadn’t received payment. 

Wall Street Banks Questioned by Fed (3:48 p.m. NY)

The troubles at Evergrande spurred the Fed to seek information from several big U.S. banks to head off any risks to financial stability, according to people familiar with the matter.

U.S. banking supervisors routinely question lenders about their ties to struggling companies. Fed Chair Jerome Powell said last week that “there’s not a direct United States exposure,” adding that big Chinese banks also are “not tremendously exposed.”

The contagion danger had been similarly dismissed by European Central Bank President Christine Lagarde, who said direct exposure in Europe is “limited.”

Powell said his main worry is “that it would affect global financial conditions through confidence channels and that kind of thing.”

A Fed spokesman declined to comment on the agency’s requests.

Beijing Prods Companies to Buy Evergrande Assets (7:50 a.m. NY)

China is encouraging companies and property developers supported by the state to buy some of China Evergrande Group’s assets, Reuters reported. The central government is unlikely to directly intervene in the form of a bailout, according to the report, which cited six people familiar with the matter.

Guangzhou City Construction Investment Group was close to buying Evergrande’s Guangzhou FC Soccer stadium and some government-owned enterprises have already done due diligence on assets in Guangzhou, one person said.

Another Looming Deadline for Evergrande (5:50 p.m. HK)

A $260 million note from a company called Jumbo Fortune Enterprises matures Oct. 3. Some holders of the bond say it’s guaranteed by China Evergrande and are forming a committee to press their claims in case of default, according to people familiar with the plans.

Jumbo Fortune is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit, according to a local bond prospectus published in April by Hengda. As Oct. 3 is a Sunday, the effective due date is the following day. 

Here are Evergrande dollar bond interest deadlines for this month and next:

©2021 Bloomberg L.P.

With assistance from Bloomberg