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China Oversees Accounts, No Payment: Evergrande Update

·8 min read
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(Bloomberg) -- China’s housing regulator boosted oversight of China Evergrande Group’s bank accounts to protect funds earmarked for housing projects from being diverted to creditors. The developer’s funds must first be used for construction to ensure project delivery, according to people familiar with the plan.

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Holders of China Evergrande Group’s dollar bonds have been left on edge after several of them said they hadn’t received a coupon payment that was due Thursday. Meanwhile, staff at the firm’s electric vehicle business haven’t been paid, and European banks are trying to reassure investors that their exposure is limited.

Evergrande’s stock and bonds declined following a rally Thursday. The shares closed down 12% in Hong Kong, while China Evergrande New Energy Vehicle Group plunged more than 20%. Evergrande’s dollar debt due March 2022 dropped 3.3 cents on the dollar, according to Bloomberg-compiled prices. It jumped the most in 18 months the day before.

Here are the latest developments at the Chinese property giant:

Amundi Downgrades China GDP Forecast (9:02 a.m. NY)

Amundi Asset Management lowered its forecast for China’s average economic growth this year to 8.3% from 8.7%, citing the housing slowdown as one of the negative drivers, according to a note co-edited by Pascal Blanque, the group chief investment Officer, and Vincent Mortier, the deputy group chief investment officer. It also lowered its forecast for growth in 2022 to 4.9% from 5.4%.

The Chinese authorities have signaled their intention “to stop real estate speculation and the need to deleverage the sector,” they said in the note. “This process is going to be choppy. In a capital-intensive sector such as real estate, a decline in debt levels will be reflected by a strong volume reduction.”

China Oversees Evergrande Accounts (6:44 a.m. NY)

The Ministry of Housing and Urban-Rural Development instructed local subsidiaries across China last month to supervise funds for Evergrande’s property projects in special escrow accounts, the people said, declining to be identified discussing private matters.

The increased oversight is another sign that homeowners come first on Beijing’s priority list for managing the Evergrande crisis.

Evergrande Uncertainty Is Hurting Sentiment (6:16 a.m. NY)

U.S. futures fell as the debt crisis at China Evergrande Group kept hurting sentiment. China’s decision to extend its crackdown to digital currencies amplified the risk-off mood in some markets.

Bitcoin declined, Argo Blockchain Plc slumped as much as 10% in London, and Bitcoin miner Northern Data AG lost about 2% in Frankfurt after China’s central bank said all crypto-related transactions are illegal.

“China authorities are forcing the available liquidity into the real economy,” said Xiadong Bao, an emerging-markets fund manager at Edmond de Rothschild Asset Management. While the move may not be direct fallout from Evergrande, the overall goal of China’s regulatory efforts is “less speculation, for example in property and crypto, and more sustainable development,” Bao said.

Grace Period Opens a Month of Uncertainty (4 p.m. HK)

Evergrande’s unusual silence about a dollar-bond interest payment that was due Thursday has put a focus on what might happen during a 30-day grace period.

The world’s most indebted developer has given no signs of having met the $83.5 million coupon payment, which has the grace period before any default could be declared.

Some Chinese companies have used such grace periods in the past to make interest payments: Shandong Ruyi Technology Group Co. last year, for example, and Qinghai Provincial Investment Group Co. in 2019. Several years ago, Glorious Property Holdings Ltd. made multiple interest payments during grace periods, including at least once on the final day.

Europe’s Direct Exposure Is ‘Limited,’ Lagarde Says (2:07 p.m. HK)

European Central Bank President Christine Lagarde said direct exposure to Evergrande in Europe, and the euro zone in particular, is “limited.”

“We are monitoring and I had a briefing earlier on today because I think that all financial markets are interconnected,” Lagarde said in an interview with CNBC. “For the moment, what we are seeing is China-centric impact and exposure.”

Her comments chime with those of Federal Reserve Chair Jerome Powell. He said Wednesday there is little direct U.S. exposure to the company’s debt, but that the situation could impact global financial conditions.

Live Q&A: Join us on Sept. 28 at 11 a.m. HK for a panel discussion on Evergrande, where Bloomberg Opinion’s Shuli Ren, Bloomberg News Team Leader for China Credit Rebecca Choong Wilkins, and Bloomberg Intelligence Credit Analyst Daniel Fan will take your questions in a session moderated by Asia Senior Editor for Finance David Scanlan.

PBOC Keeps Liquidity Flowing Amid Evergrande Woes (11:53 a.m. HK)

The People’s Bank of China continued to pump cash into the financial system amid concerns that contagion from Evergrande will affect market liquidity.

It has injected a net 460 billion yuan ($71 billion) of short-term cash into the banking system in the past five working days, including 70 billion on Friday.

Housing Sector Risks Falling into Bear Market, Citi Warns (11:46 a.m. HK)

Home prices are at risk of “meaningful downside” regardless of what happens to Evergrande, Citigroup analysts said in a note titled “A Bear Market in Chinese Property.”

“It seems clear that even in an orderly restructuring, the property sector in China is likely to face downside pressures,” wrote analysts including Dirk Willer in a note dated Thursday. “While authorities try to limit lower real estate prices due to fire sales by Evergrande by implementing price floors, price controls typically do not work.”

Lukewarm Land Sales Signal Impact of Property Crackdown (11:28 a.m. HK)

The property crackdown and crisis at Evergrande are showing more signs of cooling the market after land auctions in several cities received tepid interest. Nine out of 10 land parcels in Hangzhou, home to Alibaba Group, went unsold during the second batch of centralized land bidding recently, the Securities Daily reported. In January all four parcels in the eastern city were auctioned at the upper end of prices set by local authorities.

Evergrande Bondholders Say Yet to Receive Interest (10:15 a.m. HK)

Three holders of a China Evergrande dollar bond with a coupon that was due Thursday said they hadn’t received payment as of 8 a.m. Friday Hong Kong time. There was no immediate reply from Evergrande to questions about the interest payment. The holders asked not to be identified because the matter is private

China Urges Evergrande to Avoid Default, Repay Retail Investors

Financial regulators in Beijing issued a broad set of instructions to Evergrande, encouraging the embattled developer to take all measures possible to avoid a near-term default on dollar bonds while focusing on completing unfinished properties and repaying individual investors.

In a recent meeting with Evergrande representatives, regulators said the company should communicate proactively with bondholders to avoid a default, but didn’t give more specific guidance, a person familiar with the matter said.

There’s no indication that regulators offered financial support to Evergrande for the bond payment, and it’s unclear whether officials believe the company should eventually impose losses on offshore creditors. Policy makers are trying to learn more about who holds Evergrande’s bonds, the person said, asking not to be identified discussing sensitive information.

Banks Race to Assure Markets Evergrande Exposure Is Limited

European bankers have spent the past few days reassuring investors, clients and regulators about any fallout from Evergrande as questions swirl about the world’s most-indebted property developer.

Credit Suisse Group AG, which underwrote the most Evergrande bonds among international banks in the last 10 years, issued statements showing its asset management unit’s funds didn’t hold much of the developer’s debt. It also reached out to shareholders about the bank’s own minimal level of exposure, according to a person briefed on the discussions.

UBS Group AG’s risk is “immaterial” and limited to the execution of collateral calls on margin loans, Chief Executive Officer Ralph Hamers said Thursday. That came a day after HSBC Holdings Plc’s Noel Quinn told a Bank of America Corp. conference that he’s not worried about the bank’s direct links to Chinese real estate.

Evergrande’s EV Unit Has Stopped Paying Staff, Factory Suppliers

China Evergrande’s electric-car unit missed salary payments to some of its employees and has fallen behind on paying a number of suppliers for factory equipment, according to people familiar with the matter, evidence the stricken property developer’s debt woes are having an impact beyond its core business.

The cash flow difficulties mean China Evergrande New Energy Vehicle Group Ltd. will likely miss its target to start mass deliveries next year considering trial production of electric vehicles at its factories in Shanghai and Guangzhou has been dialed back, the people said, asking not to be identified as they’re not authorized to speak publicly.

Most employees at Evergrande NEV are paid at the start of every month and again on the 20th, however for some mid-level managers, the second installment for September hasn’t arrived, the people said. Several equipment suppliers, meanwhile, began withdrawing their on-site personnel from the Shanghai and Guangzhou sites as early as July after payments for machinery in Evergrande NEV’s factories weren’t made.

(Corrects article originally published Sept. 24 to remove item from different day.)

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