China’s Evergrande faces $117.5 million in coupon payments due

Chinese real estate developer Evergrande has $117.5 million in coupon payments due today.

Today’s payments are partial returns on 11.5% and 12% interest bonds made to foreign investors to raise liquidity for the cash-strapped company. Fearing continued defaults on unsecured international loans, creditors have threatened legal action to recoup their losses with property seizures.

Evergrande is over $300 billion in debt and has been threatening to collapse since September 2021. Government crackdowns on speculative investing and slow economic growth exacerbated this liquidity crisis. To avoid crisis, Evergrande is restructuring and selling properties to build cash reserves and avoid a domestic default.  However, it has already defaulted on loans and past coupon payments to foreign creditors, as it has favored domestic creditors in payoffs.

Expect Evergrande to miss this round of coupon payments. Short-term, this is unlikely to cause a total default as Evergrande was recently granted a payment extension by domestic bondholders, which make up the largest portion of company debt. Consequently, foreign investors will most likely pursue legal action, with little hope of success. While this will hurt international investors, effects on China’s domestic financial markets will be minimal as Evergrande’s restructuring and payment plans contain domestic fallout.

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