China Evergrande Nears Default Deadline; Beijing Rescue Unlikely

China Evergrande Group, once China's top-selling property developer, inched closer to a key deadline where it risks default on its bonds, but world markets were calmer as investors and analysts played down the threat of its troubles becoming the country's "Lehman moment," Maiya Kiedan, David Randall, David Henry, and Ira Iosebashvili reported for Reuters.

Photo Insert: Evergrande, once China's top-selling property developer, is on the brink of defaulting two loans due on Thursday and on September 29, respectively.

While concerns about the spillover from a messy collapse roiled markets on Monday, US stocks were flat on Tuesday. The US dollar held relatively steady and the US's corporate bond market steadied.

"There's been a fair bit of concern about the possibility of contagion from the meltdown at Chinese property developer Evergrande," analysts at New York-based Bespoke wrote in a research note on Tuesday. "But so far that concern isn't showing up in parts of the credit markets that have served well as red flags for broader credit crunches in the past."

A major test for Evergrande comes this week, with the firm due to pay $83.5 million in interest relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.

Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates. BNP Paribas estimated in a research note that less than $50 billion of Evergrande’s $300 billion outstanding debt is financed by bank loans, suggesting the Chinese banking sector will have a sufficient buffer to absorb potential bad debts. Citigroup Inc. subsidiaries serve as trustee and payment agent for a China Evergrande bond that matures in March 2022 and has $83.5 million in interest coming due on Thursday.

"We do not have any direct lending exposure to Evergrande; our indirect exposure through counterparty credit risk is small and with no single significant concentration," Citigroup spokesperson Danielle Romero-Apsilos said in an email on Tuesday. She declined to comment on Evergrande's scheduled payments.

Evergrande missed interest payments due Monday to at least two of its largest bank creditors, Bloomberg reported on Tuesday, citing people familiar with the matter. The missed payments had been expected as China's housing ministry had said that the company would be unable to pay on time, Bloomberg said.

As investors and policymakers around the world tried to assess the potential fallout, Securities and Exchange Commission (SEC) chair Gary Gensler said the US market is in a better position to absorb a potential global shock from a major company default than it was before the 2007-2009 financial crisis.

Despite the looming default, some funds have been increasing their positions in recent months. Fund giant BlackRock and investment banks HSBC and UBS have been among the largest buyers of Evergrande's debt, Morningstar data and a blog post showed. Other bondholders include UBS Asset Management and Amundi, Europe's largest asset manager.

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