China preparing for Evergrande’s downfall

Chinese authorities are asking local governments to prepare for the potential downfall of debt-ridden China Evergrande Group, the Wall Street Journal reported on Thursday, citing officials familiar with the discussion.

The move has been characterised as “getting ready for the possible storm” by the officials, according to the report.

The officials said local-level government agencies and state-owned enterprises have been instructed to step in only at the last minute should Evergrande fail to manage its affairs in an orderly fashion, the WSJ reported.

Local governments have been tasked with preventing unrest and mitigating the ripple effect on home buyers and the broader economy, the officials said, according to the report.

Evergrande, 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.

The company, which epitomised the borrow-to-build business model, ran into trouble over the past few months as Beijing tightened rules in its property sector to rein back debt levels and speculation.

Investors are worried that a downfall could spread to creditors including banks in China and abroad.