Yesterday a 30 day grace period for Evergrande to pay interest owed on the bonds to its creditors expired. However it’s claimed at least three bond holders have not received any payment. Speaking to Express.co.uk Dr Marco Metzler, Senior Analyst at market data service DMSA Deutsche Markt Screening Agentur, said they, and at least two others, had received no payment so far. Unlike many investors DMSA deliberately bought the bonds with the intention of finding out whether Evergrande was making all its re-payments or not.
Three weeks ago they purchased the minimum quantity of $200k (£149.18k) worth.
Dr Metzler said: “we now have the confirmation that it has not been paid.”
“I think it’s quite sure the default has happened.”
“We are now preparing a bankruptcy proceeding against Evergande and we are already in talks with lawyers and other investors to file these proceedings in the next days.”
He further confirmed DMSA were currently in talks regarding the bankruptcy proceedings with two other bondholders who had also not received payment.
Fears over the fallout of a collapse of Evergrande have been intensified this week with US central bank the Federal Reserve warning financial stresses in China could strain global markets and “pose risks to global economic growth.”
A recent report by investment bank UBS also suggested a Chinese property slump could wipe as much as $1 trillion (£740bn) from global growth.
Property currently represents 29 percent of China’s GDP however the sector, which was once a powerhouse of the country’s growth, has struggled recently from growing debt burdens and increasing regulation from the Chinese government.
Earlier this week another Chinese developer Kaisa warned it would need help in paying its loan and labour costs.
The Chinese government have previously described the situation as “controllable” however in the case of Evergrande have given little indication of Beijing’s role in a solution beyond reports pressure has been put on the company’s chair Hui Ka Yan to dip into his own personal funds.
Financial analyst at AJ Bell Danni Hewson commented: “There are a lot of eyes on the Chinese government, many people wondering whether it could really stand by and let a company of this size, with this debt fail.”
“It’s clear it wants to make a statement but it will also want to protect its economy and its people, many of whom have cash tied up in the Evergrande dream.
“Behind the scenes the expectation is deals are being made, but the longer this saga plays out the more confidence is shaken.”
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Commenting on the potential fallout from Evergrande going bust Dr Metzler speculated it could be “even worse than Lehman” referring to the collapse of investment bank Lehman Brothers in 2008 which sparked a global financial crisis.
He further claimed international firms reported to have exposure to Evergrande would be particularly hard hit citing HSBC as a possible example.
HSBC however told Express.co.uk that currently “we do not have any exposure to Evergrande” adding “we are aware that reports earlier in the year linked us to Evergrande but they were incorrect.”
Vanguard and BlackRock who are also reportedly exposed to Evergrande declined to comment.
Dr Metzler said DMSA expect to update on the bankruptcy proceedings in the coming days.
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