China Evergrande, the property giant whose financial troubles roiled global markets earlier this week, left investors in a state of uncertainty again on Thursday with the fate of an $83 million interest payment still unresolved.
The payment, on Evergrande’s dollar-denominated bonds, was due Thursday. By the end of the business day in New York, the company had still not said publicly whether it had made the payment or planned to.
One bondholder, speaking on condition of anonymity to discuss the matter, said they had not been paid. But, this person noted, the company’s debt covenants provide it with a 30-day grace period before the missed payment results in a default, which means the limbo debtholders find themselves in could continue.
The concern extends to property owners and policymakers in China who would face the fallout of a possible default. A steady flow of negative news from Evergrande has prompted panic in markets and raised fears of the possible economic contagion— including outside China — should the company collapse. Unable to sell off parts of its corporate sprawl or raise fresh cash through the sale of new properties, Evergrande is also facing angry suppliers, home buyers and employees, some of whom have protested and demanded their money.
The tension in global financial markets has eased more recently, in part as Chinese officials stepped in to shore up confidence — including by pumping billions of dollars of capital into the country’s banking system — and also after several bank executives and central bank officials outside China said the impact on institutions in the United States and Europe should be minimal.
On another key question for investors, whether China will directly bail Evergrande out, so far Beijing has remained tight-lipped while emphasizing that no Chinese company is too big to fail.
It helped that Evergrande said on Wednesday that it had reached a deal with investors over a different payment due for mainland Chinese bondholders.
Given that development, Houze Song, a research fellow at the Paulson Institute in Chicago, said Evergrande was likely to make Thursday’s interest payment. He said bondholders and Evergrande may ultimately work through a near-term agreement that involves debtholders loosing a portion on their Evergrande exposure.
Evergrande’s fate and what its failure could mean for China’s economy have divided some of the world’s best-known investors. The billionaire investor George Soros recently argued that an Evergrande collapse would set off a broader economic crash, while another billionaire investor, Ray Dalio, argued this week that an Evergrande default was “manageable.”
Investors in the dollar-denominated debt include the Swiss bank UBS, the asset manager BlackRock, the British bank HSBC Holdings, as well as a number of hedge funds. The bonds are linked to various private and public companies that are part of Evergrand but distinct from its core property business, including an electric-vehicle division. Those businesses could still have value even if the real-estate arm collapses.
Despite the lingering uncertainty, stock investors seem to expect a better outcome for Evergrande than they did earlier in the week. In Hong Kong trading, shares of Evergrande rose nearly 18 percent, and on Wall Street, the S&P 500 closed up more than 1 percent, recouping its sharp losses from earlier in the week — in part as executives at two of Evergrande’s debtholders downplayed the risk.
Ralph Hamers, the chief executive of UBS, said at an investor conference on Thursday that the bank’s direct exposure to Evergrande is “immaterial,” adding that its troubles have “not been keeping me up at night,” according to a transcript from the software firm Sentieo.
Noel Quinn, the chief executive of HSBC, acknowledged at the same conference that Evergrande’s challenges might seep further into the equity and credit markets.
“I’d be naïve to think that the turmoil in the market doesn’t have the potential to have second-order and third-order impact,” he said, calling the Evergrande situation “concerning.”
A representative for BlackRock declined to comment.
Central bankers outside China have also downplayed the risk this week. On Wednesday, the Federal Reserve chair, Jerome H. Powell, described Evergrande’s troubles as “particular to China” during a press briefing, and on Thursday, Sam Woods, Deputy Governor of the Bank of England, told Reuters that the exposure of British banks and insurance companies to Evergrande is “not material.”