Evergrande ‘Escaped’ Again from Failure to Pay, Where does the money come from?

Jakarta, CNBC Indonesia – China Evergrande, a troubled property giant with mounting debt piles, reportedly managed to make interest payments on at least two of its bonds last Wednesday (10/11).

This was conveyed by a corporate bond holder, who signaled that the company had again succeeded in avoiding default.

A spokesman for Clearstream, a post-trade service provider owned by Deutsche Börse AG, said that customers of the international clearing company have already received interest payments due on bonds issued by Evergrande.

Evergrande owes investors nearly US$150 million in interest payments or the equivalent of Rp 2.15 trillion (Rp 14,300/US$) on the three bonds, with the grace period for those payments due to expire on Wednesday.

If the deadline is passed it will trigger default which can creep through the Chinese economy.

With debt reaching around US$ 300 billion or equivalent to Rp 4,290 trillion, the company’s inability to pay its debts has the potential to hurt banks, property developers, and even homebuyers in China.

Instead, the company managed to get through from one deadline to the next, being able to meet its obligations at the last minute.

Unfortunately, often this information comes out without explaining how they were able to do it or even not disclosing at all disclosure of information that they have made payments, or where the funds come from.

It was previously known that the company had tried to sell some of its ‘royal’ business assets to raise enough money.

In October, when Evergrande abandoned plans to sell a $2.6 billion stake in the property services company to other developers, Evergrande warned in a filing with the securities authorities in Hong Kong that there was “no guarantee” that they would can meet financial obligations or negotiate loan tenor extensions with creditors.

While Evergrande has managed to avoid default so far, the property crisis has begun to weigh on other Chinese developers, with one after another starting to skip payments or default altogether.

The Chinese government has also tightened controls on lending and many investors are starting to leave the sector.

At least six Chinese property developers have defaulted on foreign currency bonds in recent weeks.

These conditions rattled domestic financial markets and increased borrowing costs for all Chinese companies.

Property prices are slowing and fewer people are buying apartments, worsening real estate prospects.

A Reuters analysis sees Evergrande’s challenges could also spread beyond China, as it could ripple through global financial markets.

On Monday, the Federal Reserve (the Fed), the US central bank, said problems in China’s property sector could threaten the United States.

Beijing’s regulatory focus on corporate debt, the Fed said, “has the potential to put pressure on some heavily indebted companies, particularly in the real estate sector, as exemplified by recent concerns over the China Evergrande Group.”

These pressures, in turn, can extend to the broader economy.

“Given the size of China’s economy and financial system and its broad trading relationship with the rest of the world, financial pressures in China could weigh on global financial markets by lowering risk sentiment, posing risks to global economic growth, and affecting the United States,” the Fed said.

At least six Chinese property developers have defaulted on foreign bonds in recent weeks, rattling domestic financial markets and increasing borrowing costs for all Chinese companies.

CNBC INDONESIA RESEARCH TEAM

[Gambas:Video CNBC]

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