China's Evergrande Group to make top priority for retail investors

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China's Evergrande Group to make top priority for retail investors

Chairman reiterates the top priority is to help investors to help share in the company.

Evergrande shares rise as much as 32%, property stocks gain more than all stocks.

Fed Chair Powell says that is not a lot of US direct exposure, in fact.

HONG KONG SINGAPORE, Sept 23 Reuters - China Evergrande Group will make it a top priority to help retail investors redeem 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 resolved a coupon payment on an onshore bond, pushing the company's stock price to its biggest single-day percentage increase since its listing in 2009.

Global investors have been in tenterhooks in recent weeks as debt obligations of Evergrande, laboring 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 will be due next week, with a $47.5 million dollar-bond interest payment due.

The chairman long after Wednesday urged his executives to ensure the quality delivery of properties and redemption of wealth management products held by millions of mainly retail investors without mention of offshore debts.

There is mounting political pressure on the company to act as homebuyers and opaque investors grow increasingly angry of having had sunk their savings in its properties and property management products.

Assuming this situation goes the way of a debt restructuring we think retail investment 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 than the other lenders close to the assets, he said.

Evergrande shares surged as much as 32% on Thursday as trading resumed after a public holiday, although gains were soon reduced 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.

Sunac China jumped 16% and Guangzhou R&F Properties surged 26%.

Robert Evergrande, founder and CIO of investment firm Oscar and Partners Capital Ltd. said Oscar Choi 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 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 lead to a Lehman moment or a systemic liquidity crunch.

Fitch Ratings said on 16 Sept that it had cut its 2021 economic growth forecast to 8.1% from 8.4%, citing the impact of the slowdown in China's property sector on domestic demand.

Underscoring the scramble to avoid contagion risk, Chinese Estates Holdings, the No. Evergrande, a shareholder of Evergrande, said on Thursday that it had sold $32 million worth of its company stake and planned to sell the holding completely.

Some analysts say it could take weeks for investors to understand how Evergrande can resolve itself.

The company could liquidate its debts but remain in operation or it could restructure, 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.

The Chinese and global investors could decide that contagion would spread beyond China, he added.

What Evergrande's problems seem particular to the U.S. Federal Reserve Chairman on Wednesday was that his comments focused on China and did not see a parallel with the Chinese corporate sector.