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China debt crunch

Evergrande on countdown to default after more missed payments

Holders of three bond issues had been due to receive $148 million

Evergrande has a 30-day grace period to make good on missed coupon payments, meaning a formal default could loom next week.   © AP

HONG KONG -- China Evergrande Group has missed its third set of bond interest payments in less than a month, signaling a default later this month is almost a certainty unless it gets a cash windfall from new investors or asset sales.

Two bondholders said on Tuesday afternoon that they had not received any payment or communications from Evergrande, which was due to make $148.1 million in coupon payments on three offshore bonds by midnight Monday New York time.

"Not a word from Evergrande and no sign of the payment either," said one. "We will prepare to seek legal recourse."

Holders of some $5 billion in offshore bonds have hired law firm Kirkland & Ellis and investment bank Moelis to seek repayment and protect their interests amid Evergrande's attempts to sell assets.

Though the two companies began reaching out to the developer before Evergrande missed its first coupon payment on Sept. 23, they told clients last Friday that they still had had "no meaningful contact."

All told, Evergrande has missed $277 million in coupon payments on its offshore bonds so far. It has a further $573 million due before the end of the year.

The company has a 30-day grace period to make good on missed coupon payments, according to the bonds' offering prospectuses, meaning a formal default now looms next week.

Evergrande, which has more than $300 billion in liabilities, admitted in late August that it could face default if it did not attract new investors or sell assets.

Shares of Evergrande and its property management unit were suspended from trading last week pending the outcome of a "major transaction."

Some Chinese media have reported that developer Hopson Development Holding, whose shares also went into a trading halt, is set to acquire a majority stake in Evergrande Property Services, which has a market value of $7.1 billion. Evergrande owns 61% of the unit.

Evergrande New Energy Vehicle Group, the group's car business, has also run out of cash, but its shares surged as much as 15.7% in Hong Kong on Tuesday after officials insisted the company would still aim to begin mass production next year.

Evergrande's woes and missed payments by smaller rivals have sparked fears of contagion across the $50 trillion Chinese financial system in recent weeks. The Central Commission for Discipline Inspection said Monday that it and other agencies would launch a two-month anti-graft check of the nation's financial regulators, banks, insurers and bad-debt managers.

S&P Global Ratings last month estimated that developers it rates are due to redeem 480 billion yuan ($74.46 billion) in domestic and offshore bonds over the next year, equal to almost a fourth of their free cash reserves. The first big slug of maturities is set to come in January, with some $6.2 billion in offshore bonds due for repayment according to brokerage CGS-CIMB.

Shanghai-based developer Sinic Holdings said late Monday that it does not expect to pay principal or interest due Oct. 18 for a $250 million bond, making default likely. The same day, Modern Land (China) asked investors for a three-month extension on a $250 million bond due Oct. 25.

Xinyuan Real Estate, meanwhile expects 90% of its bondholders to accept an offer to exchange new two-year bonds in place of a $229 million issue maturing this Friday. Earlier this month, Fantasia Holdings, a Shenzhen-based developer, failed to redeem a $205.7 billion bond.

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