Chinese real estate giant Evergrande, on the verge of bankruptcy, today announced a deal with a local lender to avoid defaulting on interest on a major bond.
The group’s situation, with an accumulated debt of more than $300 billion, is affecting international markets, which fell this week amid fears of a possible contagion of the entire Chinese economy.
In a statement sent to the Shenzhen (South China) Stock Exchange, Hengda’s subsidiary said it has negotiated a plan to pay interest on Thursday’s maturing bonds, which many are suspicious of paying.
Bloomberg economics agency calculated the interest at 232 million yuan ($35.9 million).
The statement did not mention the interest payment on another bond that also matures on Thursday.
The agreement means a brief respite for the real estate developer, which has 200,000 employees, is present in more than 280 cities and claims to be responsible for creating 3.8 million indirect jobs in China.
Analysts say that is a relief to the markets, albeit only in the short term.
“For the trust to become more feasible, the market will have to consider Evergrande’s broader restructuring plans,” Gary Duggan, chief executive of CIO’s global office, told Bloomberg.
Founded in the 1990s, Evergrande has recorded strong growth backed by significant debt, currently in excess of US$300 billion.
Last week, the group admitted it was “under enormous pressure” and acknowledged the possibility of failing to meet its commitments.
The plight of Evergrande, which has 1.4 million properties under construction for delivery, has sparked protests from customers, suppliers and investors fearing they will lose their money.
The company’s president and founder, Xu Jiayin, told employees this week that the group “will soon be able to come out of its darkest moment.”
The company hired experts to try to prevent the collapse, and according to information from Bloomberg, government regulators also sent employees to help the group.
Fears of Evergrande bankruptcy and contagion of the Chinese and global economy weighed on stock exchanges this week.
“Capital reserves in the Chinese banking system are strong enough to absorb the impact, including the size of the Evergrande, if it occurs,” said Abdul Abyad, director of macroeconomic research at the Asian Development Bank.
“This ensures careful vigilance because the real estate sector is an important component of the Chinese economy (…) If the real estate sector is affected, this could have implications for the Chinese economy as a whole,” he added.
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