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China’s Evergrande meets critical debt deadline but another looms

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The troubled Chinese real estate conglomerate said in a document filed with the Shenzhen Stock Exchange on Wednesday that the problems over the payment of a national bond in yuan had been “settled through negotiations.”

However, many questions remain unanswered. Evergrande did not specify the terms of payment. The amount of interest he owes on the bond is around 232 million yuan ($ 36 million), according to data from Refinitiv.

Interest worth $ 83.5 million on a dollar denominated security The bond is also due on Thursday, although the company has not said anything publicly about what will happen to that payment.

Evergrande is stumbling under $ 300 billion in debt, largely held by Chinese financial institutions, retail investors, home buyers and its suppliers in the construction, materials and design industries. Foreign investors also hold part of its debt. In recent weeks, the company has twice warned investors that he could default if he is unable to raise funds quickly.

It is not clear whether the company will actually default or whether Beijing will step in and orchestrate some other kind of restructuring. But failure of the business would likely create aftershocks that could spill over into the financial market and the wider Chinese economy.

Earlier this week, global markets were gripped by fears over Evergrande, as shares in Hong Kong, New York and other major markets fell.

Hong Kong markets – where Evergrande shares and some of its bonds are traded – were closed on Wednesday for a public holiday. Trade was cut in mainland China, which reopened after a two-day vacation. The reference Shanghai Composite (SHCOMP) was up 0.4%, offsetting earlier losses.

Investors may have been appeased by Evergrande’s stock exchange filing, although it contained few details.

“There seems to be an acceptance that an Evergrande failure is more a question of when and not if, and the real question is how the fallout is handled,” wrote Michael Hewson, chief market analyst at CMC Markets in a report released on Wednesday, noting that the company had already defaulted on loan repayments earlier this week.

He added that “the picture on this remains uncertain after a vague statement this morning” on domestic bond coupons, and noted that Evergrande had not mentioned anything about the US dollar interest payment due Thursday.

A big question that remains for Evergrande is whether the Chinese government would be ready to bail out the company. Beijing has so far remained silent.

Many analysts believe the government will intervene to some extent, but a full bailout is unlikely.

“We do not expect the government to provide direct support to Evergrande,” wrote S&P Global Ratings analysts in a research note Tuesday. That’s because a government bailout would undermine Beijing’s campaign to “bring greater financial discipline to the real estate industry,” they wrote.

Instead of a bailout, analysts expected the government to focus on guiding Evergrande through an orderly process of debt restructuring or bankruptcy, while ensuring that that small investors and home buyers be protected “as much as possible”.

“Government support to prevent a default is only likely if contagion risks cause other big developers to fail,” they said, adding that they believed that the only blow to the financial system by Evergrande would still be “manageable”.

Macquarie Group economists also expect the government to ensure that Evergrande’s pre-sold apartments are completed and delivered to homebuyers, but shareholders and lenders could “take a big loss.”

– Anneken Tappe contributed to this report.

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