2021-09-22

Evergrande: Nothing For Foreign Bond Holders So Far

Yesterday, I posted China Will Nuke Foreign Investors From Orbit. I briefly discussed why I believed the CCP would only bailout Evergrande to prevent contagion and not make everyone whole. Although a rescue plan still hasn't been announced, local bond holders will get at least some of their interest payment tomorrow.

ZH: Offshore Creditors Remain In Limbo As Evergrande Agrees To Pay Thursday's Interest On Local Bonds Only

Bloomberg reported that the September 23rd yuan coupon payment on local, yuan-bonds had been negotiated with bondholders (without clarifying the terms of the arrangement) but it was unclear what the fate of the upcoming Offshore bond coupon payment is.

Morgan Stanley had previously suggested this plan of action, forecasting that Beijing may initiate a managed debt restructuring of “a troubled property developer” in the coming week, followed by policy easing in October to contain spillover to the broader economy.

The world’s most indebted developer is supposed to pay bond interest totaling about $119.5 million on Thursday. Interest comes due Thursday on two Evergrande notes, even as it falls behind on payments to banks, suppliers and holders of onshore investment products

I will be mildly surprised if there's nothing for foreign bondholders, if only because China wants to keep the shingle out for business, but I do not expect much because foreign lenderss are not a systemic risk for China. Any rescue in any nation should be focused on keeping a bust from triggering contagion. A bailout of a failed entity should be avoided at all costs and if the entity must be saved, it should come at 100 percent loss for all equity and bondholders. In the United States, bailouts are for the most destructive actors. I expect China will be more just.

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