Chinese property firm can dodge bullet with bond repayment

Frustrated by the opacity of its domestic bond market, Chinese property firm Evergrande struck a deal Saturday to repay investors in a bond that matured this month ahead of schedule, reports Reuters. In addition…

Chinese property firm can dodge bullet with bond repayment

Frustrated by the opacity of its domestic bond market, Chinese property firm Evergrande struck a deal Saturday to repay investors in a bond that matured this month ahead of schedule, reports Reuters.

In addition to its previously announced intention to repay the bond through a share sale, Evergrande also announced it would issue another $1.6 billion of bonds through a fundraising program allowed under a recent policy change for local governments. The proceeds of the issuance of these bonds would likely be used to repay earlier investors.

Grupo Positivo Industrial, a subsidiary of Evergrande, said it would use the proceeds to pay $295 million in principal to holders of the 7.875% notes due on June 29.

The disposal of those notes was achieved by way of a somewhat convoluted complex deal that involved the RMBBond 6180173701.0512KW

Evergrande, which failed to make a bond payment in May, issued the RMB bonds at an average yield of 6.901% last year. Ten traders in China said they hadn’t seen interest rates of that magnitude before in an investor report from Deutsche Bank’s Shandsong Chang

The extension of the debt will close the chapter on the events of May, when the Chinese property group defaulted on its debt for the first time in the country’s chequered corporate history and drew widespread international attention.

The strategy will keep investors off the property firm’s hands — Evergrande did not refinance the RMB bonds due on June 29, officials said. It reiterated plans to come up with a long-term solution for refinancing its general borrowing needs.

A stretch or a desperate measure?

The move suggested that the company would refinance its debt, but not at the inflated interest rates it currently pays, analysts say.

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