Evergrande Bonds at 77 Cents on the Dollar Show Lingering Doubts
Evergrande Bonds at 77 Cents on the Dollar Show Lingering Doubts
(Bloomberg) -- China Evergrande Group’s campaign to revive confidence in its financial health has gone over remarkably well with stock investors, adding $11 billion to the property giant’s market value since fears of a cash crunch emerged two weeks ago.
Bondholders have proven far less forgiving.
While Evergrande’s dollar notes have recouped some of their losses after the company struck a deal with strategic investors to avert a liquidity squeeze, they’re still trading well below levels reached two weeks ago. Evergrande’s offshore bond due 2025 is priced at about 77 cents on the dollar, implying a yield of 16%, data compiled by Bloomberg show. It fetched 81.5 cents on Sept. 23.
The world’s most indebted developer will likely return to the spotlight on Friday when Chinese markets re-open after the Golden Week holidays, one of the busiest times of the year for new home purchases. Investors will be looking for sales figures from Evergrande while also analyzing price action in the company’s yuan bonds. Even though concerns about an imminent default have largely faded, creditors aren’t yet convinced that Evergrande’s finances are sustainable over the long-term.
“Short-term liquidity risks have been averted,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “But the issue of a heavy debt burden remains.”
Chang said Evergrande’s short-dated debt may outperform its longer-term bonds, adding that the company’s sales will be a key determinant of its ability to reduce leverage and boost investor sentiment.
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That’s especially true for holders of Evergrande’s longer-dated bonds. The company’s dollar note due 2024 is indicated at 89.3 cents on the dollar, versus 95.6 cents for its 2021 bond, Bloomberg-compiled prices show. Its onshore note due 2024 closed at 88.4 yuan on Sept. 30.
Evergrande’s fate could have far-reaching ramifications. The company is Asia’s biggest issuer of junk bonds, accounting for about 7% of the market, and its roller coaster ride over the past two weeks has been a major driver of sentiment across the region.
©2020 Bloomberg L.P.