Evergrande Group Photo: CFP

China Evergrande Group's debt issue is a "market incident" and will be handled in accordance with market-oriented and law-based solutions, China's central bank governor said on Thursday, vowing that the rights and interests of the indebted real estate developer's creditors and shareholders would be fully respected in line with legal liquidation procedures.

Risks encountered by individual property developers in the short run won't impact the market's normal fundraising capacities over the medium- to long-term, Yi Gang, governor of the People's Bank of China (PBC), the central bank, said in remarks to an online seminar on Hong Kong's positioning and prospects as an international financial hub, according to a post on the Sina Weibo official account of Guoshizhitongche under the China News Service.

In a filing with the Hong Kong stock exchange on Friday, Evergrande Group said that it received a demand to perform its obligations under a guarantee in the amount of about $260 million. "In the event that the Group is unable to meet its guarantee obligations or other financial obligations, it may lead to creditors demanding acceleration of repayment."

A portion of investors in Hong Kong also paid heed to the developments, but as a mature international financial center, Hong Kong has built a system for highly efficient financial operations, as well as crystallized legal rules and procedures, Yi said. 

Evergrande shares finished up 4.05 percent on Thursday on the Hong Kong market, outperforming a 1.08 percent gain in the Hang Seng Index. Evergrande's year-to-date losses reached 87.77 percent.

The newest remarks serve as a further wake-up call for property developers to take a more proactive approach in managing debt repayment, especially when it comes to US dollar-denominated bonds that involve many overseas creditors, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Thursday.

With legal liquidation procedures highlighted as standard practice for companies in addressing their debts, it's expected that risks associated with dollar bonds would receive more attention, thereby soothing investor worries, Yan said.

Yi's remarks on Thursday came after the central bank, among three major Chinese financial regulators - which also include the banking and insurance regulator and the securities regulator - last Friday moved to reassure markets in rare simultaneous remarks that the Evergrande issue, essentially an individual case, is not of concern to the country's capital market and housing market stability.

South China's Guangdong provincial government summoned Evergrande last Friday, immediately after the Shenzhen-headquartered property developer warned that day that it may fail to meet its financial obligations under the $260 million guarantee.

Global Times