HSBC, UBS among big banks to have cut exposure to China Evergrande as outlook worsens for debt-stricken developer
- Financial companies have sought to reassure investors in recent days, saying their Evergrande exposure is immaterial or minimal
- Concerns over Evergrande risk have shaken financial markets
As a result, many financial companies sought to reassure investors and downplay their exposure as questions lingered about whether Evergrande managed to make an US$83.5 million coupon payment due on Thursday.
UBS Group CEO Ralph Hamers said the bank’s exposure to Evergrande was “immaterial” and limited to collateral calls on margin loans, while rival Credit Suisse said it was not “an existing lender to Evergrande and we have no direct lending exposure to the company”.
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“China will always have some degree of unpredictability – any country does, but China maybe more so than some – but I think the trick here is to spread exposure across sectors, which is what we have done, and to be very attuned to what is happening on the ground,” Halford said at a conference hosted by Bank of America. “We need to be careful that we don’t overreact. In this instance we don’t have any significant exposure, the overall sectoral exposure is very modest and we’re much, much less concerned than the initial market reaction.”
Cash-strapped Evergrande’s troubles have multiplied this summer as it faced questions about its ability to repay its massive debt load against the backdrop of Beijing’s efforts to cut borrowing levels in China’s property sector and take some of the air out of speculative bubbles that have driven up residential property prices in recent years.
It was scheduled on Thursday to make an interest payment on a dollar-denominated debt that is set to mature in March, but it was widely expected to not make that payment on time. Several bondholders contacted by the Post said they had not heard from Evergrande as of the close of business on Thursday. Evergrande did not make a public statement on Thursday.
Evergrande has a 30-day grace period to make a payment on that dollar bond before a default can be declared.
Earlier this year, HSBC, alongside BlackRock and UBS, were large holders of Evergrande’s debt in their asset management businesses, according to Bloomberg data.
HSBC, Hong Kong’s largest currency-issuing bank, no longer holds Evergrande in its China bond portfolios or its Asia credit portfolios and its holdings were underweight fund benchmarks, according to a person familiar with the matter. All of its positions were sold over the past six weeks, the person said.
UBS and HSBC declined to comment on their current holdings, while BlackRock did not respond to a request for comment.
Publicly released data from providers such as Bloomberg and Morningstar has struggled to keep up with the pace of sales by asset managers in recent weeks as Evergrande’s debt has been reduced to the lowest rating for junk bonds by the three major credit rating agencies.
“Across its emerging markets debt and multi-sector strategies, Neuberger Berman doesn’t have any Evergrande exposure,” the US investment manager said in a blog post on its website.
The Post understands that a Temasek subsidiary exited its Evergrande bond position several months ago and Neuberger has sold its Evergrande holdings. Pictet has no direct exposure to Evergrande and limited client exposure, according to a person familiar with the matter.
Temasek and Pictet declined to comment on their holdings.