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Big, but failed

The Evergrande debacle has been a drama of many acts as the company stumbles from one crisis to the next, weighed down by more than $300 billion of debt. But are we reaching the final scenes in the story of its decline?

The last few weeks have seen at least three separate scrambles to make last-minute payments on Evergrande’s offshore bonds. But its announcement last Friday that it would “actively engage with offshore creditors to formulate a viable restructuring plan” signalled that a default on its obligations was imminent, HSBC’s Asia Credit Research team warned last week.

It also meant an anxious weekend for bondholders waiting for just over $82 million in much-delayed coupon payments from Evergrande on Monday. The news from some of them – that nothing had arrived – fed a fearful market in Hong Kong, where the company’s shares fell to record lows. One of the major concerns from investors is that repayment failures will trigger defaults in Evergrande’s other liabilities, bringing down the final curtain on the embattled developer.

The situation had improved slightly by Monday evening, after the company announced that it will set up a “risk management committee” to deal with the operational and financial challenges it is facing.

Evergrande’s chairman and controlling shareholder Xu Jiayin will chair the new committee, but five of the other six positions have been reserved for representatives of SOEs under the local governments of Guangdong and the city of Guangzhou (including developer Yuexiu and investment bank Guosen) as well as Cinda, one of the four major ‘bad banks’ that specialises in mopping up distressed assets.

The implication is that Evergrande’s imminent restructuring is likely to mirror the way the Hainan government has taken the lead in dealing with HNA.


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