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Hui Ka Yan, the billionaire founder of China Evergrande Group, was urged by government authorities to use his own wealth to help solve the company’s deepening debt crisis, according to people familiar with the matter.

The directive from Beijing came after Evergrande missed an initial Sept. 23 deadline for a coupon payment on a dollar bond, the people said, asking not to be identified discussing a private matter. The company faces another payment deadline on Oct. 29, when a 30-day grace period ends.

Evergrande dollar bonds are still priced at high default likelihood
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Evergrande dollar bonds are still priced at high default likelihood (Graphic: Bloomberg)

Signs of stress in China’s real estate sector sharpened on Tuesday after Modern Land China Co. failed to pay either the principal or interest on a $250 million bond due Monday, according to a Singapore stock exchange filing. The company is working with its legal counsel, Sidley Austin LLP, and expects to engage independent financial advisers soon, the filing said. Fitch Ratings downgraded Modern Land to restricted default from C following the missed payment.

China has clamped down on the indebted real estate sector, making it difficult for developers to refinance as they face falling home prices and sales. Multiple developers have defaulted this month, although Evergrande made a coupon payment last week before a grace period expired. A top Chinese regulator on Tuesday asked firms in key industries to make preparations to meet offshore bond payments in an effort to contain the spillover from Evergrande’s struggles.

The focus now turns to the end of a grace period on another Evergrande dollar bond later this week. Still, the company’s creditors are bracing for an eventual debt restructuring that could rank among the largest ever in China.

China asks firms to prepare for offshore payments

A top Chinese regulator called on companies to make “active preparations" to meet payments on their offshore bonds.

The National Development and Reform Commission, the regulator overseeing foreign debt issuance, also called on companies to “optimize their foreign debt structure" to raise funds, according to a statement following a meeting with companies in key industries on Tuesday. The statement didn’t name companies.

 

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