Evergrande Founder’s Photo-Op Gives Bonds a Rare Boost

(Bloomberg) -- A photo of China Evergrande Group founder Hui Ka Yan attending Communist Party celebrations hosted by the country's ruling elite lifted the embattled developer's bonds, a day after the company was downgraded for the second time.

Hui, the billionaire chairman of China's second-biggest property developer, was invited to join the event in Beijing's Tiananmen Square to celebrate the Communist Party's 100-year anniversary Thursday, according to a statement and photo sent by the company to Bloomberg News.

Getting an invitation to the July 1 festivities is often considered a show of favor for corporate elites, and provides some relief for Evergrande investors as the company faces heightened scrutiny to pare its massive debt load. Hui, China's 22nd-richest man, has been a member of the Communist Party for more than 35 years, and a regular donor to charitable causes.

Hui's attendance at the ceremony “broke market's skepticism that regulators are targeting Evergrande,” said Daniel Fan, a credit analyst with Bloomberg Intelligence. His appearance “soothed the worries,” while Evergrande's progress in cutting debt further boosted confidence. That may ease concerns about whether the company is too big to fail, Fan said.

The 5.9% 4 billion yuan note due 2023, issued by the company's main onshore arm, jumped 1.6% to 86.4 yuan, set for the highest in four weeks. The same subsidiary's 6.98% 8.2 billion yuan bond due 2022 also climbed 1.9% to 84.6 yuan, on pace for the highest since June 9. Evergrande's 8.75% dollar bond due in 2025 was little changed in Singapore, while trading in its notes in Hong Kong was closed for a holiday.

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For a day at least, the photo of Hui on the Tiananmen Rostrum overlooking the celebrations led by President Xi Jinping helped offset concerns about Evergrande's ability to reduce debt to meet stringent new requirements from the Chinese government.

China Evergrande Group's credit rating was cut by Moody's Investors Service late Wednesday, the second downgrade by a global ratings company in less than two weeks. Moody's lowered the rating by one notch to B2, five levels below investment grade.

“Although Evergrande has been reducing its debt to improve its financial stability, the company still faces sizeable maturing debt and puttable bonds over the next 12-18 months,” Moody's said.

Concern has been building over the troubled Shenzhen-based developer, which on Wednesday tried to reassure investors about its financial health, saying it has reduced its net debt-to-equity ratio to below 100%, as required by Chinese regulators. The firm has pared total borrowings to about 570 billion yuan ($88 billion) from 717 billion yuan in December.

Evergrande shares have plunged by almost a third this year, reducing Hui's net worth by about $6 billion, according to the Bloomberg Billionaires Index.

Hui wasn't the only executive in attendance. Meituan's Wang Xing was also there, signaling the chief executive officer and his tech company may be back in Beijing's favor following a controversy over a poem he posted.

Wang was among the tens of thousands of people listening to Xi's speech, local television images showed. Guests included medal winners, long-standing Communist Party members, as well as “fighters” who contributed to China's campaigns against poverty and Covid-19, according to state media.

With assistance from Bloomberg