WORLD

Evergrande debt payment deadline ends; investors fear of default battering Chinese economy

Evergrande inched closer on Friday to potential default that investors feared as an interest deadline expired without any announcement from the property giant, whose mountain of debt has spooked world markets. 


The company owes $305 billion, has run short of cash and investors are worried that a collapse could pose systemic risks to China’s financial system and reverberate around the world. 


A deadline for paying $83.5 million in bond interest passed without remark from Evergrande or any sign of bondholders being paid. The company is now in uncharted waters and enters a 30-day grace period. It will default if that passes without payment. 


“These are periods of eerie silence as no one wants to take massive risks at this stage,” said Howe Chung Wan, the head of Asia fixed income at Principal Global Investors in Singapore. 


“There’s no precedent to this at the size of Evergrande ... we have to see in the next ten days or so, before China goes into holiday, how this is going to play out,” he added. 


China’s central bank again injected cash into the banking system on Friday, seen as a signal of support for markets. But authorities have been silent on Evergrande’s predicament, and China’s state media has offered no clues on a rescue package. 


Evergrande appointed financial advisers and warned of default last week, and world markets fell heavily on Monday amid fears of contagion, though they have since stabilised. 


The conundrum for policymakers is how fiercely they can impose financial discipline without fuelling social unrest, since an ugly collapse at Evergrande could crush a property market which accounts for 40 per cent of Chinese household wealth. 


Protests by disgruntled suppliers, home buyers and investors last week illustrated discontent that could spiral in the event a default sparks crises at other developers.

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