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Shares of China Evergrande surged in Germany on Wednesday as investors cautiously welcomed news of a planned bond payment by a unit of the troubled property giant, and signs of support from Beijing.
Frankfurt listed shares climbed 28%, while the company’s Hong Kong stock HK:3333 didn’t trade due to a holiday, after closing 0.4% lower on Tuesday, the seventh-straight day of losses.
Gains for Evergrande in Germany followed a statement by onshore unit Hengda Real Estate Group, which pledged to make an on-time interest payment on Thursday, possibly giving the debt-burdened mothership some leeway. In a filing, Hengda said it will pay 232 million yuan ($35.9 million) of interest on its 5.80% September 2025 bond.
The statement from Hengda came as the People’s Bank of China also appeared to step up to the plate on Wednesday.
“With one eye on the Evergrande saga, which has captured the worlds attention, the PBOC has injected a chunky liquidity injection today of CNY 120 billion via the 7 and 14-day repos. Whether that is enough to soothe frayed nerves in China remains to be seen,” said Jeffrey Halley, senior market analyst at OANDA, said in a note.
Halley noted a story in the Financial Times that said Evergrande issued wealth management products that were sold to retail investors to “plug financial holes in various subsidiaries.”
“Concerns also swirl around its stake in a regional Chinese bank and whether it has been borrowing from itself effectively. The coupon payment story is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring,” added Halley.
Michael Hewson, chief market analyst at CMC Markets, noted that Hengda’s statement was “vague,” and also that there was “no mention on its U.S. dollar bond payments.”
Evergrande itself still faces two looming financial hurdles — an $83.5 million interest payment Sept. 23 on its March 2022 bonds and a $42.5 million payment on Sept. 29 on its March 2024 notes, according to news reports. The conglomerate faces default if it can’t settle those payments within 30 days of their due date.
The rapid flow of news around Evergrande also saw a separate report on Wednesday that claimed the Chinese government plans to split Evergrande into three separate units, in an announcement that could come within days. Those units would be controlled by state-owned enterprises.
While problems have been brewing for months, Evergrande swung into the global spotlight last week after saying it had hired financial advisers, as major ratings agencies have been warning of potential default. Concerns swamped global markets on Monday, triggering a stock market slump amid fears an Evergrande default could trigger market chaos on a scale of the Lehman Brothers implosion in 2008.
But many on Wall Street have maintained that Evergrande will not be be China’s ‘Lehman moment’. Ray Dalio, founder and co-chief investment officer at Bridgewater Associates, echoed those sentiments in a Tuesday interview with Bloomberg.
“$300 billion is what they owe and this is all manageable. The basic economics is for all countries in all times is that if your debt is in your own currency, you can deal with it, you can work it out,” said Dalio. “We’ve seen it happen over and over again, and it’s a good thing that lenders get stung or that borrowers get stung. That’s how the system works.”
U.S. stock futures
ES00,
were moving higher on Wednesday, ahead of a Federal Reserve decision. The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
extended losses to a fourth day in a row on Tuesday.
