Evergrande at Risk of First Local Bond Default

It was reported on July 11th that Evergrande Group first encountered local creditors’ refusal of extending bond payment terms. This may lead to a milestone onshore default and encourage investors to take a tougher stand against other developers who are suffering from the country’s property debt crisis. 

 According to a filing by the Shenzhen Stock Exchange on Monday, the holders of resaleable RMB-denominated bonds rejected Evergrande Real Estate Group’s plan to further extend the payment term to another six months after the deadline on July 8th. One week ago, Evergrande held a meeting to seek the creditors approval for an extension, but more than 90% of voters rejected the proposal.

 Last year, as the Communist China authorities started an extensive crackdown on the real estate sector which has been loaded with debts, the real estate giant’s reducing credit has shocked the market. If Evergrande fails to repay local bonds, it may mark the developer’s first official delinquency on domestic notes, after defaulting on US dollar bond payments last December. 

 The involved local note is a security valued at RMB 4.5 billion (USD 671 million), which will be due in 2023, and investors have a put option to seek early repayment. According to its offering announcement, the security does not have a grace period. In January, the developer had postponed the early repayment by six months through obtaining the investors’ support, thereby avoiding its first default on a public onshore bond.