Evergrande is not running out of money yet, says a bond expert who expects China’s government to ‘force collaborations’ between stakeholders

Evergrande
The logo of Evergrande Real Estate on a crane in Hangzhou, east China's Zhejiang Province
  • "Evergrande is too big for the Chinese government to ignore," said Warut Promboon, Bondcritic's credit research head.
  • Evergrande isn't out of money yet - the problem is moving liquidy around the company, said Warut.
  • Evergrande has $500 million in payments due by year-end - about 0.17% of its $300 billion debt pile.

Evergrande's debt crisis will be drawn out, but the fallout will likely be contained as the Chinese government "force collaborations" among stakeholders, said a credit expert who has been studying Evegrande bonds since 2011.

"Evergrande is too big for the Chinese government to ignore," wrote Warut Promboon, head of credit research at research firm Bondcritic in a note.

Real estate giant China Evergrande is now the world's most indebted company with a $300 billion debt pile. It has managed to pay off two overdue coupons just in time, averting a default that could send the rest of the sector - and possibly the rest of the world - into a massive crisis. The two payments totaled around $127.7 million, a tiny sliver of Evergrande's overall debt.

Despite Evergrande's debt woes, it's unlikely the firm is out of money, Warut told Insider last week. That's because a company as large as Evergrande will still have money in various locations including in subsidiaries. Instead, it's a question of how the corporate treasury can move the funds around.

"We believe the problem is how the company can move its liquidity around the organization to pay back debt," wrote Warut in the note published on the Smartkarma platform.

The credit crisis in the Chinese property sector is likely to be contained because the political system in China empowers regulators with "heavy hands which will force collaborations among issuers, investors, and intermediaries" who are often owned or influenced by the government itself, he said.

Chinese officials have sought to calm nerves about the debt crisis and have publicly chided Evergrande, telling it to resolve its debt problems and instructing the country's real estate developers to pay their overseas bondholders. Bloomberg, citing people familiar with the matter, reported that Beijing has also gone as far as telling Evergrande's billionaire founder, Hui Ka Yan, to use his own money to pay the company's debt.

China Evergrande still has $500 million in payments due by the end of this year - about 0.17% of its $300 billion debt pile.

Warut said the Chinese government would be closely monitoring Evergrande on its debt payments and its construction schedule. Assets sales, he added, including project sales to other developers, are likely going ahead, with the transactions administered or brokered by Chinese regulators.

The entire process could take years, Warut said, citing the example of embattled Chinese conglomerate HNA, whose trouble began in 2017. It started selling off its assets, and the now-bankrupt company is in the midst of a restructuring push.

Evergrande will likely go the way of HNA, eventually resulting in "a smaller Evergrande" Warut said.

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