Evergrande will be split in four parts: ex-PBOC adviser

Finance | Reuters and staff reporter 23 Sep 2021

China Evergrande Group (3333) will not exist anymore and will be split into four parts, says a former adviser of the People's Bank of China, David Li Daokui, while global financial institutions and Japan's pension funds have exposure to their bonds.

The four major parts, including real-estate development, finance, electric vehicles and other commercial enterprises, are expected to be sold to individual companies and even local governments, Li said.

Evergrande, Asia's biggest junk bond issuer, said it will make a coupon payment on its domestic bonds due today. It did not specify how much interest would be paid or when.

Nor did Hengda mention Evergrande's other pressing debts, leaving it unclear what this means for US$83.5 billion (HK$651.3 million) in dollar bond interest payments due today and the US$47.5 million in payments due next week.

Fund giant BlackRock and investment banks HSBC and UBS have exposure to Evergrande through direct loans and indirect holdings, while any defaults will also trigger sell-offs in the high-yield credit market.

BlackRock added 31.3 million notes of Evergrande's debt between January and August, pushing its stake in the company to 1 percent of the assets in its US$1.7 billion Asian High Yield Bond Fund, said Morningstar.

HSBC increased its positions in the company by 40 percent up to July, Morningstar said.

UBS increased its position by 25 percent through May, the latest date available in the fund tracker's database.

The debt crisis of individual real-estate companies is a concentrated manifestation of the risks inherent in the long-term high-leverage and high-debt model of the real-estate industry, state media said, warning that more companies may go into crisis if the model remains unchanged.

The International Monetary Fund said it is closely following developments surrounding Evergrande, but believes Beijing has the tools to prevent the situation from turning into a systemic crisis.

S&P Global Ratings had previously said it does not expect Beijing to provide any direct support to embattled Evergrande, but Evergrande failing alone was unlikely to cause many major developers to fail and pose systemic risks to the economy.

In an effort to revive battered confidence in the firm, Evergrande's chairman Hui Ka Yuan said in a letter to staff the company is confident it will "walk out of its darkest moment" and deliver property projects as pledged.

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