SINGAPORE (REUTERS, BLOOMBERG) – China Evergrande slipped toward a kind of limbo on Friday (Sept 24) with bondholders still waiting for information about a key interest payment due on Thursday, leaving global financial markets on tenterhooks over the embattled property giant’s fate.

Evergrande shares fell as much as 6 per cent in early trade on Friday, paring gains of nearly 18 per cent the previous day after it said it had resolved the coupon payment for one of its domestic, onshore bonds. 

Its assets are trading at distressed levels, with the share price down more than 80 per cent this year and the US dollar bonds with imminent payments due trading around 30 cents on the dollar. 

The company has run short of cash to fund its US$305 billion (S$411.3 billion) in debts and markets are worried that a collapse could pose systemic risks to China’s financial system and reverberate around the world.

Last week Evergrande appointed financial advisers and warned of default and world markets fell heavily on Monday, though they have since stabilised. At its offices, furious small investors have protested to try and retrieve life savings sunk into its properties and wealth-management products.

Evergrande has promised to prioritise them and also resolved one coupon payment on a domestic bond this week. But it has said nothing about an US$83.5 million offshore interest payment that was due on Thursday or a US$47.5 million payment due next week.

Bondholders are losing hope and starting to think it might be a month or so before things become clearer.

As night fell in New York, there had been no announcements about the payment. A company spokesperson did not respond to requests for comment.

Failure to pay within 30 days of the deadlines would put the bonds in default and stoke concern about a messy liquidation that drags down China’s vast property sector.

“Current market pricing estimates that investors in Evergrande’s dollar bonds are likely to recover very little,” said Jennifer James, a portfolio manager and lead emerging markets analyst at Janus Henderson Investors.

“The likeliest outcome is that the company will engage with creditors to come up with a restructuring agreement,” she said.

“How China handles Evergrande, and others, could be consequential. If mismanaged, then the loss of confidence could have contagion effects to other financial markets.”

Bondholders should know soon after 0100 GMT whether any overnight payments had arrived, a trader in Hong Kong said.

Earlier on Thursday, Bloomberg Law reported that Chinese regulators had asked Evergrande executives to avoid a near-term default on its dollar bonds and to communicate proactively with bondholders, citing sources familiar with the matter.

“They don’t want a default right now,” said Mr Conor Yuan, the head of emerging market flow credit trading for Asia at Goldman Sachs. “Given there is a 30-day grace period, I think today it’s very likely the coupon won’t be made but it is possible that they try to get a deal done in the next 30 days.”

The Wall Street Journal reported separately on Thursday that the Chinese authorities were asking local governments to prepare for the potential downfall of Evergrande, China’s second-biggest property developer, citing officials familiar with the talks.

A spokesman for Evergrande, China’s second-biggest property developer, declined to comment on the two reports.

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, 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.

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

The company, which epitomises the borrow-to-build business model and was once China’s top-selling developer, has run into trouble over the past few months as Beijing tightened rules in the property sector to rein in debt levels and speculation.

Investors worry that the Evergrande rot could spread to creditors, including banks in China and abroad, though analysts have been downplaying the risk that a collapse would result in a “Lehman moment”, or a systemic liquidity crunch.

Still, central bankers say they are keeping a close eye on Evergrande. The Bank of England said on Thursday it did not expect the situation to go badly wrong and was cautiously optimistic Beijing would avoid any major issues.

Evergrande Chairman Hui Ka Yan urged his executives late on Wednesday to ensure the delivery of quality properties and the redemption of its wealth management products, which are typically held by millions of retail investors in China.

He did not mention the company’s offshore debt, however.

The WSJ said local governments had been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions.

They have also been ordered to talk to local state-owned and private property developers to prepare to take over projects and set up law-enforcement teams to monitor public anger and “mass incidents”, a euphemism for protests, it said.

Analysts said the moves by Beijing underscored the pressure on Evergrande, whose liabilities run to 2 per cent of China’s gross domestic product, to contain the fallout from its credit crunch and protect mom-and-pop investors over professional creditors.

‘All my savings’

Oscar and Partners Capital founder and chief investment officer Oscar Choi said Evergrande was wary of inflaming social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their losses.

Once those priorities had been met, Evergrande would talk to its other creditors, he said, adding: “Otherwise a few hundred thousand people will fight with the government.”

At an eerily quiet construction site in eastern China, worker Li Hongjun said Evergrande’s crisis meant he will soon run out of food while Ms Christina Xie, who works in the southern city of Shenzhen, feared Evergrande had swallowed her savings.

“It’s all my savings. I was planning to use it for me and my partner’s old age,” said Ms Xie. “Evergrande is one of China’s biggest real estate companies… my consultant told me the product was guaranteed.”

Evergrande’s EV Unit 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 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.

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.