China tells Evergrande to avoid dollar bond default as deadline looms

By Clare Jim, Anshuman Daga and Tom Westbrook

HONG KONG/SINGAPORE (Reuters) -Chinese regulators have asked China Evergrande Group to avoid a near-term default on its dollar bonds, Bloomberg Law reported on Thursday, the day the troubled property developer is due to make a much-awaited interest payment on its offshore debt.

In a recent meeting with Evergrande executives, regulators said the company should communicate proactively with bondholders to avoid a default but didn’t give more specific guidance, it reported, citing a person familiar with the matter.

A company spokesperson did not immediately respond to Reuters request for comment on the report.

U.S. equity index futures kicked higher and the U.S. dollar’s losses widened after the report.

Evergrande Chairman Hui Ka Yan urged his executives late on Wednesday to ensure the delivery of quality properties and the redemption of its wealth management products, which are typically held by millions of retail investors in China.

He did not mention the company’s offshore debt.

Analysts said the moves underscored political pressure on Evergrande, whose liabilities run to 2% of China’s gross domestic product, to contain the fallout from its credit crunch and protect mom-and-pop investors over professional creditors.

Global markets have been on tenterhooks in recent weeks as looming payment obligations of Evergrande, which has a $305 billion mountain of debt, triggered fears its difficulties could pose systemic risks to China’s financial system.

The company, China’s second-biggest property developer, has $83.5 million in dollar-bond interest payments due on Thursday on a $2 billion offshore bond and a $47.5 million dollar-bond interest payment due next week.

Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

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 debt levels 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.

‘SOCIAL STABILITY’

There is mounting pressure on the company to act as the frustration of homebuyers and retail investors who have sunk their savings into its properties and products grows.

“Assuming this situation goes the way of a debt restructuring … we think the retail investor nature of the wealth management products would be…