Evergrande, Still Breathing Hard, Resumes Construction

BELEAGUERED PROPERTY DEVELOPER Evergrande dodged its October 23 debt default deadline, making an $83.5 million payment to its international bondholders due on September 23, just before the 30-day grace period expired.

That was the first of five coupon payments it has missed on their due dates, totalling a combined $275 million.

It is unclear where Evergrande got the $83.5 million from, but it has bought another week of breathing room, although the company will still be breathing hard under the weight of its more than $300 billion in liabilities.

One place the funds for the coupon payment did not come from was the hoped-for sale of control of its core property business, Evergrande Property Services. Talks to sell a 51% stake of Evergrande Property Services to Hong Kong-listed Chinese property developer Hopson Development fell through.

Trading of shares in Evergrande Property Services resumed on Thursday on the Hong Kong stock exchange, having been suspended since October 4 pending a possible general offer for its shares. Evergrande said the day before that there had been no material progress in asset sales. The last significant disposal was a 20% stake in Shengjing Bank to an agency of Shenyang city’s government.

However, the company has restarted work on up to 10 projects in six cities, including Shenzhen. On August 31, it had acknowledged that delays in paying suppliers and contractors had forced the suspension of some projects. However, its statement on Sunday on WeChat announcing the resumptions did not disclose on how many of its 1,300 developments across China it had halted work.

Last week, People’s Bank of China Deputy Governor Pan Gongsheng reiterated that the risks from Evergrande are controllable, property sector financing is returning to normal, and that the bank will protect households and suppliers.

Not many investors in financial markets share the central bank’s sanguinity. First, there is the ever-present risk of default. Each grace period is starting to feel like a round of Squid Game for Evergrande.

Second, the speed and depth of the slowdown of China’s property market that the crisis has triggered are raising concerns about the extent to which they will weigh on GDP and whether authorities can balance reducing the cost of living by making housing more affordable with managing decelerating growth.