(Bloomberg) — China Evergrande Group injected a fresh dose of uncertainty into financial markets with a vaguely worded statement on a bond interest payment that left analysts grasping for details.
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Evergrande’s onshore property unit said in an exchange filing on Wednesday that an interest payment due Sept. 23 on one of its yuan-denominated bonds “has been resolved via negotiations off the clearing house.” But the unit didn’t specify how much interest would be paid or when.
The filing has triggered speculation among some analysts that Evergrande struck a deal with noteholders to postpone interest payments without having to label the move a default.
Chinese companies typically pay interest on local bonds through a clearing house; when they arrange to pay noteholders directly, it’s often because the companies can’t transfer the cash on time or in full, said Li Kai, Beijing-based founding partner of bond fund Shengao Investment.
“Usually it will involve extension, payment in installment or a reduction in the coupon,” Li said. “This is one of the ways to avoid defaults by distressed companies.”
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Investors around the world are scrutinizing Evergrande’s every move as they try to gauge whether the property giant’s cash crunch will lead to financial and economic contagion. While the knee-jerk reaction to Evergrande’s filing on Wednesday was positive, risky assets including S&P 500 Index futures have since pared some of their gains.
Calls to Evergrande seeking comment on the interest payment went unanswered.
Billionaire Hui Ka Yan’s developer is widely expected to be on the cusp of one of China’s largest-ever debt restructurings, but the company and Communist Party leaders have so far given few indications on how they plan to resolve a liquidity crisis that roiled markets from Hong Kong to New York this week.
Evergrande missed interest payments due Monday to at least two of its largest bank creditors, according to people familiar with the matter. The developer, Asia’s largest issuer of junk bonds, also has an interest payment due Thursday on one of its dollar notes.
Chinese authorities have begun to lay the groundwork for a potential restructuring, assembling accounting and legal experts to examine the finances of the group.
The amount due for the coupon on the 5.8% 2025 local bond was 232 million yuan ($35.9 million), according to data compiled by Bloomberg.
“Evergrande might have arrived at some kind of standstill with onshore holders,” said Daniel Fan, a credit analyst at Bloomberg Intelligence. “They might have asked them not to act, pending for negotiation for a rescheduling or something of that sort.”
Evergrande has some $19.2 billion in outstanding offshore notes and 53.5 billion yuan in local securities.
It owed $669 million in interest through the end of this year including $83.5 million in the coupon payment also due Sept. 23 on the dollar bond. There’s a 30-day grace period before a missed payment on that dollar note would become a default, according to the bond convenants.
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