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Wednesday, August 10, 2022

Evergrande’s Debt Crisis Has Finally Come Into Play

Evergrande will be facing its first debt crisis this week, with several investors looking forward to it. The main idea behind this event would be to see if the embattled property developer from China would be able to pay its interest out due on a bond, or by defaulting on it.

The firm has to pay interest which is worth $83 million on Thursday, according to data that has been received from S&P Global Ratings. According to information provided by market data provider Refinitiv Eikon, the denominated bond of this property developer had an initial issue size of around $2 billion, but the price has since then plummeted. 

Evergrande Needs To Clear the Interest Payment 

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On the other hand, yields on the bonds of Evergrande have reached a limit of 560% from a minimum limit of 10% just a few months back. The bond for this would be maturing by March 2022. Interestingly, the property developer would also have to pay an interest payment on a US dollar bond of 7 years next Wednesday.

Ray Attrill, the head of foreign exchange strategy at the National Australia Bank, mentioned that the events on Thursday would be quite important for the markets- one way or the other. 

Several market watchers and analysts have been expecting Evergrande to miss the interest payment scheduled on Thursday. However, it won’t be deemed as technical default until the property dealer fails to clear the payment in the next month. Vishnu Varathan of Mizuho Bank has mentioned that the property dealer from China is already in a state of default after missing out on the bank interest payment. 

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In a note that was published on Tuesday, Varathan stated that Evergrande has the possibility of spooking capital markets- if it misses a bond coupon over the week.

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