Pedestrians pass by a residential community developed by Evergrande in Huaian, Jiangsu province. (PHOTO PROVIDED TO CHINA DAILY)

China Evergrande Group won support from a group of strategic investors that agreed to hang on to their shares, allowing the embattled property developer to avoid billions in potential repayments. The bonds rallied.

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Evergrande bonds rallied, as investors speculated the deal will give it breathing room to reduce its US$120 billion in debt and avoid a costly repayment to investors

The property firm said investors holding equity stakes worth about 86.3 billion yuan (US$12.7 billion) agreed to keep their shares and not require the company to buy them out. That group represents the majority of the 130 billion yuan in shares held by strategic investors in Evergrande’s Hengda Real Estate unit, who could demand repayment in January under certain conditions, according to a statement Tuesday. 

Evergrande bonds rallied, as investors speculated the deal will give it breathing room to reduce its US$120 billion in debt and avoid a costly repayment to investors. Some of the dollar bonds jumped more than five cents on the dollar, extending gains, according to Bloomberg-compiled pricing. The firm’s note due 2025 climbed 5.1 cents on the dollar to 79.1 cents, while a bond due 2022 climbed 5.7 cents to 85.8 cents.

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Strategic investors have the right to demand repayments for the US$19 billion they poured into the company three years ago unless Evergrande is able to win a backdoor listing in China by Jan 31. 

Evergrande traded little changed in Hong Kong at HK$16.50, after jumping 21 percent Monday to recover losses from last week. The agreement was announced after markets closed.