On the brink, Evergrande will repay a small part of its debt

Threatened with bankruptcy, the Chinese real estate giant Evergrande announced Wednesday the payment of interest on a small part of its debt, but without reassuring financial markets which are still waiting to know if Beijing will come to the rescue of the private group.

The fear of seeing a repeat in China, the world's second largest economy, of a Lehman Brothers scenario, whose bankruptcy precipitated the 2008 crisis in the United States and around the world, has caused financial markets to plunge in recent days.

Read alsoReal estate: the fall of the Chinese giant Evergrande shakes the markets

All eyes are on the Chinese government, which has not specified whether it intends to intervene in favor of the conglomerate, crushed by some 260 billion euros in debt. As default threatens, the giant promoter announced on Wednesday morning that it had reached an agreement with bondholders on a small part of its debt. In a press release addressed to the Shenzhen Stock Exchange (southern China), the group specified that one of its subsidiaries, Hengda Real Estate, had negotiated an interest repayment plan on a bond maturing in 2025.

According to the financial agency Bloomberg, Evergrande was due to honor a 232 million yuan (30.5 million euros) debt maturity on Thursday on this 5.8% bond limited to the domestic bond market. Holders "who have purchased and hold these bonds" before Wednesday's date "are entitled to the payment of interest," Evergrande said, without specifying exactly how much he would pay to his creditors.

Day 1: I do a lot of baking this time of year & sometimes need to double a recipe, so I'm thankful for knowing how… https://t.co/mrc27Ue4rY

— Sherri Richardson Mon Nov 11 19:12:21 +0000 2019

Lack of prospects

But the real estate giant is far from out of the woods given the total amount of its debt. The Shenzhen juggernaut acknowledged last week that it was facing "enormous pressure" and warned that it might not be able to honor all its commitments. Other maturities are expected Thursday on the international bond market and the group did not specify how it intended to settle the interest on these bonds. The announcement of the partial refund "will help and we can hope that it will reduce the volatility and the decline of the markets a little", estimated Gary Dugan, of the investment consulting firm Global CIO Office in Singapore.

“But for confidence to return for good, the market would have to see prospects for restructuring at Evergrande,” he told Bloomberg. However, the communist regime did not specify whether it intended to help bail out the private group, of which 1.4 million homes would remain unfinished, to the chagrin of as many cheated owners. Last week, dozens of them protested outside the group's headquarters and elsewhere in the country. Creditors, employees and suppliers are also demanding to be paid by Evergrande, which multiplied investments until Beijing tightened borrowing rules last year.

A “Lehman Brothers” scenario dismissed

The group's chairman, billionaire Xu Jiayin, told his staff that Evergrande would "soon emerge from its darkest period", state media reported on Tuesday. Once the richest man in China, Mr. Xu assured that the construction sites would resume completely and that the group would provide “a response to buyers, investors, partners and financial institutions”. He did not provide further details. The announcement of interest payments did not really reassure the markets. If the Shanghai Stock Exchange closed up 0.4%, that of Shenzhen ended down 0.57% on Wednesday, after a four-day break due to public holidays. The Hong Kong Stock Exchange was in turn closed on Wednesday.

The OECD for its part dismissed on Tuesday the risk of a scenario at Lehman Brothers. "The connection between Chinese financial markets and others is less than what we see in the Western world," said the international organization's chief economist, Laurence Boone. "The impact would be relatively limited, except for certain companies," she added, saying that "the Chinese authorities have the fiscal and monetary capacity to cushion the shock." Laurence Boone, however, acknowledged that a possible decline in Chinese growth would have an impact worldwide.

SEE ALSO - The possible bankruptcy of the Chinese giant Evergrande could have serious consequences in China and elsewhere