HONG KONG: China Evergrande Group bondholders are about to find out if the property giant’s liquidity crisis is as dire as it appears.

       Interest payments on two Evergrande notes come due Thursday, a key test of whether the developer will continue meeting obligations to bondholders even as it falls behind on payments to banks, suppliers and holders of onshore investment products.

       Investors are pricing in a high likelihood of default, with one of the notes trading at less than 30% of face value.

       Concern over Evergrande’s ability to make good on US$300bil (RM1.25 trillion) of liabilities is spilling into China’s financial markets.

       Shares of other real estate firms have plunged, while the yield on an index of dollar-denominated junk bonds has climbed to about 14%, the highest in nearly a decade.

       The People’s Bank of China injected US$14bil (RM58.4bil) of short-term cash into the financial system last Friday in a sign policy makers want to soothe nerves.

       The Evergrande payments due Thursday include US$83.5mil (RM348.3mil) of interest on an 8.25%, five-year dollar bond, Bloomberg-compiled data show.

       There is a 30-day period before a missed payment is considered a default, according to the bond’s covenants.

       Evergrande needs to pay a 232 million yuan (US$36mil or RM150mil) coupon on an onshore bond the same day.

       In total, Evergrande has US$669mil (RM2.8bil) in coupon payments coming due through the end of this year.

       Some US$615mil (RM2.6bil) of that is on dollar bonds, Bloomberg-compiled data show.

       Fitch Ratings flagged the increased chance of a payment failure this month when it slashed the firm’s credit grade even deeper into junk territory, citing the risk of “probable” default.

       Evergrande is also scheduled to pay interest on bank loans today, with a one-day grace period. Today and tomorrow are public holidays in China.

       While details on the amount due aren’t publicly available, Chinese authorities have already told major lenders not to expect repayment, sources said last week.

       Evergrande and banks are discussing the possibility of extensions and rolling over some loans, the sources said. Bond investors are rushing to lock in professional help as a potential restructuring for Evergrande edges closer to reality. — Bloomberg