China Evergrande Group will make it a top priority to help retail investors redeem their investment products sold by the indebted property giant, its chairman said, as uncertainty looms over interest payment due for a dollar bond on Thursday.
Hui Ka Yan's statement came after the developer said on Wednesday it had "resolved" a coupon payment on an onshore bond, pushing the company's stock price to its biggest single-day percentage rise since its listing in 2009.
Global investors have been on tenterhooks in recent weeks as debt payment obligations of Evergrande, labouring under a $305 billion mountain of debt, triggered fears its malaise could pose systemic risks to China's financial system.
The company faces $83.5 million in dollar-bond interest payments due on Thursday on a $2 billion offshore bond. And more payments are coming due next week, with a $47.5 million dollar-bond interest payment due.
Without mentioning the offshore debt, the chairman late on Wednesday urged his executives to ensure the quality delivery of properties and redemption of wealth management products held by millions of mainly retail investors.
There is mounting political pressure on the company to act as homebuyers and retail investors grow increasingly angry of having sunk their savings in its properties and opaque wealth management products.
"Assuming this situation goes the way of a debt restructuring ... we think the retail investor nature of the wealth management products would be prioritised for social stability," said Ezien Hoo, credit analyst at OCBC Bank.
Foreign investors, who hold paper issued by offshore entities, might find it harder to get paid as they had "lower bargaining power versus other lenders closer to the assets," he said.
Evergrande shares surged as much as 32 per cent on Thursday as trading resumed after a public holiday, though gains were soon pared and months of heavy losses still leave the stock down more than 80% for the year to date.
Evergrande's property services unit also climbed. The sense of relief spread to mainland property stocks listed in Hong Kong, with Country Garden, China's largest developer, up as much as 14 per cent. Sunac China jumped 16 per cent and Guangzhou R&F Properties surged 26 per cent.
Oscar Choi, founder and CIO of investment firm Oscar and Partners Capital Ltd, said Evergrande was wary of enflaming social tensions by leaving homes unbuilt, construction workers unpaid and retail investors counting their losses.
Once those priorities had been met, Evergrande would talk to its other creditors, he said, adding: "Otherwise a few hundred thousand people will fight with the government."
A company spokesperson did not immediately respond to request for comment on its payment obligation due on Thursday.
Evergrande, which epitomised the borrow-to-build business model and was once China's top-selling developer, ran into trouble over the past few months as Beijing tightened rules in its property sector to rein back too much debt and speculation.
Investors worry that the rot could spread to creditors including banks in China and abroad, though analysts have been downplaying the risk that a collapse would result in a "Lehman moment", or a systemic liquidity crunch.
Fitch Ratings said on Sept. 16 that it had cut its 2021 economic growth forecast for China to 8.1 per cent from 8.4 per cent, citing the impact of the slowdown in the country's property sector on domestic demand.
Underscoring the scramble to avoid contagion risk, Chinese Estates Holdings, the No.2 shareholder of Evergrande, said on Thursday it had sold $32 million worth of its company stake and planned to exit the holding completely.
Some analysts say it could take weeks for investors to have any clarity about how the Evergrande situation will resolve.
"The company could restructure its debts but continue in operation, or it could liquidate," wrote Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. In either case, investors in the company's financial instruments likely would suffer some losses, he wrote.
"In the event of a liquidation, however, Chinese and global investors could decide that the contagion could spread beyond China," he added.
U.S. Federal Reserve Chair Jerome Powell said on Wednesday that Evergrande's problems seem particular to China and that he did not see a parallel with the U.S. corporate sector.