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Evergrande investors in limbo after payment deadline passes

Kitco News

SINGAPORE/SHANGHAI, Sept 24 (Reuters) - China Evergrande has left global investors guessing over whether it will make a key interest payment, adding to fears that Beijing will let overseas bondholders swallow large losses as a liquidity crisis deepens at the world’s most indebted property company.

Evergrande owes $305 billion, has run short of cash and investors are worried a collapse could pose systemic risks to China's financial system and reverberate around the world.

A Thursday deadline for paying $83.5 million in interest of a dollar bond passed without remark from Evergrande, and bondholders had not been paid nor heard from the company, two people familiar with the situation told Reuters. read more

The firm has a 30-day grace period and will default if that passes without payment.

Evergrande's silence on the interest payment and another $47.5 million payment due next week contrasts with its treatment of its domestic investors. The company this week resolved one coupon payment on a domestic bond.

"This is part of the tactics of any sovereign driven restructuring process - keeping people in the dark or guessing," said Karl Clowry, a partner at Addleshaw Goddard in London.

"The view from Beijing is offshore bondholders are largely Western institutions and so can justifiably be given different treatment. I think people think it's still a falling knife."

China's central bank again injected cash into the banking system on Friday, seen as a signal of support for markets. But authorities have been silent on Evergrande's predicament and China's state media has offered no clues on a rescue package.

"These are periods of eerie silence as no one wants to take massive risks at this stage," said Howe Chung Wan, head of Asia fixed income at Principal Global Investors in Singapore.

"There's no precedent to this at the size of Evergrande ... we have to see in the next ten days or so, before China goes into holiday, how this is going to play out."

Smaller but still large is the ongoing fallout from the insolvency of China's HNA Group conglomerate, whose creditors are seeking $187 billion according to a source familiar the talks and where on Friday police seized the chairman and CEO. read more

APPOINTS ADVISERS

Evergrande (3333.HK) appointed financial advisers and warned of default last week and world markets fell heavily on Monday amid fears of contagion, though they have since stabilised.

The conundrum for China's leaders is how to impose financial discipline without fuelling social unrest, since an Evergrande collapse could crush a property market which accounts for 40% of Chinese household wealth. read more

Protests by disgruntled suppliers, home buyers and investors last week illustrated discontent that could spiral in the event a default sparks crises at other developers. read more

China's fragmented property market is showing some signs of strain, which could spur a wave of consolidation among real estate companies. read more

Capital Economics' senior China economist, Julian Evans-Pritchard, said Evergrande's crisis had had a much bigger impact on housing demand than he had anticipated, and households had turned much more cautious, triggering a drop in prices.

Global markets on Friday seemed rattled by the missed payment and regulatory silence.

PLAY FOR TIME

Some $20 billion of Evergrande's debts are owed offshore while at home there are risks for China's property sector and its liabilities spread across bank balance sheets and beyond.

There have been few signs of official intervention. The People's Bank of China's 270 billion yuan ($42 billion) cash injection this week is the largest weekly sum since January and has helped put a floor under stocks.

Bloomberg Law also reported that regulators had asked Evergrande to avoid a near-term default, citing unnamed people familiar with the matter.

The Wall Street Journal said, citing unnamed officials, that authorities had asked local governments to prepare for Evergrande's downfall and distress is already evident among Evergrande's peers. read more

Some banks, insurers and shadow banks have begun checks on their exposure to the troubled sector. read more

"We are concerned about the spillovers into the real economy and broader credit conditions," said analysts at Societe Generale in a note. "The longer policymakers wait before acting, the higher the hard-landing risk."

Evergrande's shares fell about 13% on Friday, while stock of its electric-vehicle unit (0708.HK) dropped 20% to a four-year low. Its bonds fell slightly and its offshore bonds with imminent payments due , last sat around 30 cents on the dollar and were thinly traded.

"It is clear now that Evergrande will make use of the 30-day grace period, to see if there is any further development or instructions from the government," said Jackson Chan, assistant manager of fixed income research at research portal Bondsupermart.

($1 = 6.4589 Chinese yuan renminbi)

Reporting by Anshuman Daga and Tom Westbrook in Singapore, Andrew Galbraith in Shanghai and Kirstin Ridley in London. Additional reporting by Clare Jim in Hong Kong. Writing by Tom Westbrook; Editing by Jane Merriman and Jason Neely
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