Market May Overcome Evergrande Crisis, Main Chinese Central Banker Says

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The financial stress of China Evergrande Group and some of its peers will not cause long-term damage to the Hong Kong market, and the broader debt issues of Chinese real estate developers should be addressed in accordance with market principles. , said China’s main central banker.

Hong Kong-listed Evergrande, which is one of China’s largest developers and has nearly $ 20 billion in US dollar bonds outstanding, did not make past due payments on some bonds by a date final limit on Monday, potentially paving the way for Asia’s biggest default. Fitch Ratings lowered Evergrande and two key subsidiaries to a “narrow default” rating on Thursday, citing missed coupon payments.

Days before the non-payment, Evergrande sought government help after warning he might not be able to pay off a $ 260 million debt he had guaranteed. The 25-year-old conglomerate, which had been on the verge of failure for months, also said for the first time it was open to negotiating a restructuring with offshore creditors.

Yi Gang, Governor of the People’s Bank of China, said on Thursday that while Evergrande’s recent warning may have worried some Hong Kong investors, the city was a well-developed financial center with a well-defined legal framework to manage these. problems.

“The risk caused by a few real estate companies in the short term would not undermine the market in the medium to long term,” Yi said in video remarks delivered at a seminar with the Hong Kong Monetary Authority, the city ​​authority. de facto central bank.

Yi added that China’s central bank is committed to ensuring a level playing field for investors. “Companies issuing bonds abroad and their shareholders will be urged to properly manage their debt issues and honor their debt in accordance with the law and market principles,” he said. “It’s a market event. It should be managed in a market-oriented way, based on the law. “

“The rights and interests of creditors and shareholders will be fully respected, in accordance with their legal seniority,” said the central banker.

The prices of dollar bonds issued by Evergrande and other low-credit-rating developers have plunged in recent months as investors opted for a high likelihood of not being repaid in full. Evergrande’s 8.75% bonds due 2025 were listed on Thursday at 20 cents to the dollar, according to Tradeweb. Shares of Evergrande and many of its peers have also fallen this year.

Yi also supported his institution’s weight in Hong Kong’s role as a financial hub on Thursday. “The People’s Bank of China has been and will continue to be a supporter of the development of Hong Kong as an international financial center,” he said.

The official listed five ways in which Hong Kong’s financial industry could develop: handling more cases related to financial technology, green finance, internationalization of the yuan, China’s “Belt” initiative and the Road “and connect more Chinese companies to global investors.

Beijing is supporting Hong Kong as a financial hub while asserting tighter political control, in part by giving the city more means to act as an intermediary between China and international markets. The last few months have seen the launch of a cross-border retail investment program known as Wealth Management Connect and the opening of an offshore bond trading channel by continental investors.

On Monday, the PBOC eased its policy slightly by reducing the amounts banks are required to hold as reserves. Some economists have said the move could signal the start of an easing cycle meant in part to offset the damage caused by a slowing housing market.

The central bank and other Chinese institutions have previously emphasized their support for the healthy development of the Chinese real estate market and argued that the challenges of Evergrande are self-inflicted. The PBOC said Evergrande’s problems could be contained and urged adherence to market principles.

Write to Quentin Webb at [email protected] and Jing Yang at [email protected]

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