The government of Guangdong, the southern province where Evergrande is based, summoned founder Hui Ka Yan to express concern over the company’s Friday announcement and said it would dispatch a team to the developer to ensure “normal” operations. Some investors in its trust products are high-net-worth clients of commercial banks, which means the spillover could extend beyond the already embattled trust sector, people familiar with the matter said. Evergrande sparked protests earlier this year when it missed payments on 40 billion yuan ($6.2 billion) of wealth management products, sold to retail investors including its own employees. Top of mind for regulators is social stability. Grace periods for interest payments on two notes from Scenery Journey end Monday and could mark the firm’s first default on public debts.Ĭhinese authorities, including the central bank and the securities regulator, sought to reassure investors shortly after Evergrande’s statement late on Friday, reiterating that broader risks to the economy can be contained. It would include public notes sold by Evergrande and unit Scenery Journey Ltd., according to the people, who asked not to be identified discussing private information. “The company would face immense repayment pressure at once.”Įvergrande is planning to include all its offshore public bonds and private debt obligations in a restructuring that may rank among the nation’s biggest ever, people familiar with the matter said. If holders of an Evergrande bond declare it in formal default “cross defaults would be automatically triggered for the firm’s other debt instruments, including trusts,” said Daniel Fan, an analyst at Bloomberg Intelligence. The data only covers trusts sold to retail investors and not so-called single trusts, which are private placements and make up the bulk of Evergrande’s financing through the products. It had $1.8 billion in trust loans maturing in the fourth quarter, with another $5 billion due over 20, according to Use Trust, a company that tracks the industry. The risk of contagion into the $3 trillion trust industry will add pressure on policy makers to ease the crunch in the real estate sector, which has already triggered protests by home-buyers and investors in wealth management products sold by Evergrande and another embattled developer Kaisa Group Holdings Ltd.Įvergrande has done business with most of the 68 trust companies in China. While the firms have been reducing their exposure to Evergrande and its peers since then, they continue to be massive lenders with at least $12 billion in developer-linked trust payments due just this month. Evergrande didn’t immediately respond to a request for comment.Įvergrande counts trust companies, which pool money from wealthy individual investors, as an important source of funding - accounting for about 40% of borrowings at the end of 2019, when it last disclosed the figures. None of the trust firms were immediately available to comment. Should Evergrande be declared in formal default on its bonds, a wave of cross defaults could be triggered, giving trusts limited room to negotiate extensions with investors or bridge over payment lapses by dipping into their own pockets, said one of the people. The meetings illustrate how a key group of onshore Evergrande creditors are responding to a Friday statement from the developer in which it formally acknowledged for the first time the need to restructure offshore debt.
Evergrande defaults how to#
At least five trust companies held emergency meetings over the weekend to discuss how to handle potential disputes with investors, the people said.
and National Trust, notified clients over the past few days that they risk missing payments on Evergrande products due to the developer’s strained finances and will take legal action to protect investors, people familiar with the matter said, asking not to be named discussing private deliberations. (Bloomberg) - Trust firms that have issued at least $5 billion in high-yield products linked to China Evergrande Group are bracing for a cascade of losses after the cash-strapped developer said it may no longer be able to meet its financial obligations.Īt least three firms, including Citic Trust Co., China Foreign Economy and Trade Trust Co.