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Capital Markets

Evergrande: A bond default is the least of China’s problems

Global investors want to know if troubled Chinese developer Evergrande can meet its bond repayments – but far bigger risks exist, from local government bond defaults to badly run banks exposed to overleveraged developers.

Evergrande-HQ-logo-camera-Reuters-960.jpg
Photo: Reuters

The eyes of many global investors are now on Evergrande’s bonds.

And for good reason. On Wednesday, Evergrande said it resolved interest payments on an onshore bond due this week. The following day, it was scheduled to make an $83.5 million repayment on a $2 billion offshore bond. Another $47.5 million is due next week.

Financial regulators in Beijing told management to avoid a near-term default on its dollar bonds, to prevent contagion spreading through the economy and offshore.

But let’s look ahead, to events likely to lead the news tomorrow, next month and beyond. For even if Evergrande’s financial plight can quickly be resolved – and it cannot – multiple spillover risks present themselves.

Not all are destined to happen, but some surely will, so it is worth running the rule over them now.

Three red lines

Let’s start with China’s property sector, an industry described by Andrew Collier, China country analyst at research firm GlobalSource Partners, as a long-term “huge piggy bank for the economy”.

For years, regulators looked the other way as onshore developers loaded up on debt and invested in sectors far beyond their remit.


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