The logo of Reuters China Evergrand can be seen outside the China Evergrand Center building in Hong Kong, China on September 23, 2021. Reuters / Tyrone Sue
HONG KONG (Reuters) – China Evergrand Group will make it a priority to help retail investors sell their investment products sold by investment giants, its chairman said, as uncertainty arose over interest payments on a dollar bond on Thursday.
Carlos Casanova, Senior Asia Economist at Union Banker Privy, Hong Kong
“In my opinion it shows that they are close to reaching an agreement with the government on how to go about this managed restructuring.
“Asset management products are important for two reasons. Of course this is a gray area and so we don’t have visibility on how much risk there can be.
“And so while in no way is the government’s goal to send a message that guarantees return on asset management products … From the point of view of social stability it is important to ensure that Chinese retail investors get their money back and homeowners get their money delivered.
“So in my opinion it indicates that they are close to being in a position where they have an agreement on how to handle their situation.”
Ejien Hu, Credit Analyst at OCBC Bank, Singapore
“We think it has two parts: one, the nature of investors and two, how far investors are sitting from assets.
“Assuming this situation is on the way to a debt restructuring … we think the nature of the retail investor in asset management products (WMP) for social stability will be given priority.
“This is especially true so that we understand that the media has reported that WMP investors are also made up of company employees. In our view, this will be despite WMP’s actual legal position. It is still unclear to us. The exact terms of such products (e.g. Evergand Whether such products are fully guaranteed by development projects).
“In the case of dollar-denominated bonds (probably mostly invested by foreign bondholders), dollar bonds are issued outside offshore entities that sit farther away from assets located in China and subordinate to donors’ coasts. Donors, especially donors who have direct claims on assets.
“Excluding this, we would imagine that many holders of dollar-bonds are institutional funds and exchange-traded funds managed by sophisticated investors, where the issues leading to its current liquidity pressures at Evergrande have been well telegraphed for at least a few months now.”
WEI-LIANG CHANG, Macro strategist at DBS Bank, Singapore
“Asset management products are marketed to retail investors, and there is probably political pressure on the company to ensure a fair settlement.
“Credit payers’ preferences should not be affected in a restructuring, and bonds and assets will depend on the legal provisions of the product.”
Bird Hartman, Head CIO Office of Boutique Private Bank VP Bank
“China’s political leadership will probably be aware of the gravity of the situation. The aim may be to break up the Evergrand Group. Evergrand is already selling its good bit. Thus, the government has already chosen to break it. Build an exclusive structure in the real estate market as well.”
“We assume that the Chinese leadership will intervene, but the right attention will be given. The authorities will try to break the Evergrand to free up liquidity and prevent it from spreading to other sectors. At the same time, Beijing will probably try to protect private property buyers who already have their flats. Have paid and are paying the mortgage but are waiting for the end.
“Sales to private companies have already failed. It is conceivable that the intervention will be through the Guangdong provincial government instead of the central government. Thus the creditors will suffer the most.
“A big impact will be a long and severe recession in property prices and sales. This must be avoided. In the short term, China may deviate from the real path to cooling the real estate market through austerity measures.”
Long Chain, a partner of Plenum, an independent research platform in Beijing
“China has gone through a number of high-profile bank failures and corporate bankruptcies over the past three years. Evergrand’s financial risk does not seem to be much greater than that of Baoshang Bank or HNA. It is not at all surprising to see a default.
“The difference between this period is that buyers in Evergrand have, 000,000,000 apartments with a total value of 200 billion yuan ($ 30.94 billion) and 600 billion yuan to construction companies and suppliers.
“The top job is to build apartments, and the government has multiple options to do this. Avoiding property collapses across the country is equally important and requires a change in policies, which is very arrogant at the moment.
“No one is interested in bailing Evergrand, but no one wants a crisis. The moment Evergrand collapses, it will be easier for Beijing to simplify policies. To put it this way: it will be more of a ‘whatever it takes’ moment than a ‘Lehman moment.’ It will hurt more, but not later. ”
($ 1 = 0.1547 renminbi)