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Evergrande shares rise on report of bond interest payment

written by Bella Palmer
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China's blue-chip index ended 0.6% higher, while Hang Seng index gained 0.4%

China and Hong Kong stocks rose on Friday, led by property shares, as China Evergrande Group unexpectedly supplied funds for a bond interest payment, while comments from the banking regulator also underpinned the property market.

The company missed an $83.5m payment last month, triggering a 30-day grace period set to expire on Saturday.

Evergrande has supplied funds to pay interest on a U.S. dollar bond, a person with direct knowledge of the matter told Reuters on Friday, days before a deadline that would have seen the developer plunge into formal default.

News of the remittance will likely bring relief to investors and regulators worried about a default’s wider fallout in global financial markets, adding to reassurance from Chinese officials who have said creditors’ interests would be protected.

Energy and mining shares, however, dropped as coal futures extended losses after Beijing signalled it would intervene to cool surging prices that contributed to the country's electricity shortage.

China's blue-chip CSI300 index ended 0.6% higher, while the Shanghai Composite Index erased earlier gains to close the session 0.3% lower. Hong Kong's Hang Seng index gained 0.4%.

In the short term, we believe the interest repayment should provide a fillip to Chinese risk assets, including the yuan and Chinese equities, said Wei Liang Chang, Macro Strategist at DBS Bank, Singapore.

Evergrande default risks, though not dissipated, have likely been deferred for some time, Chang said.

Sentiment in the sector, which had been badly hurt by Evergrande's debt crisis, also recovered after China's banking regulator on Thursday urged lenders to fulfil credit needs for basic demand and support mortgage lending to first-home buyers.

We note regulators have softened tones to prevent over-tightening on property, and witness marginally easing measures on property-related loans, Citi said in a research note, expecting the mortgage rate in certain regions to fall over time.

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