China Evergrande Group bondholders are about to find out if the property giant’s liquidity crisis is as dire as it appears.
Interest payments on two Evergrande notes come due Thursday Sept 23, a key test of whether the developer will continue meeting obligations to bondholders even as it falls behind on payments to banks, suppliers and holders of onshore investment products. Investors are pricing in a high likelihood of default, with one of the notes trading at less than 30% of face value.
Concern over Evergrande’s ability to make good on US$300 billion of liabilities is spilling into China’s financial markets. Shares of other real estate firms have plunged, while the yield on an index of dollar-denominated junk bonds has climbed to about 14%, the highest in nearly a decade. The People’s Bank of China injected US$14 billion of short-term cash into the financial system on Friday in a sign policy makers want to soothe nerves.