China Evergrande debt crisis is worrying investors. Why, and what’s ha…

China Evergrande debt crisis is worrying investors. Why, and what’s ha…




China Evergrande Group has missed a dollar bond interest payment deadline, moving closer to a possible default and fuelling worries about a collapse that could send shockwaves by China’s economy and beyond.

Chairman Hui Ka Yan established Evergrande in Guangzhou in 1996. It is China’s second-largest character developer with US$110 billion in sales last year, US$355 billion in assets, and over 1,300 developments nationwide. It listed in Hong Kong in 2009.

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Evergrande grew rapidly by a loan-supported land-buying spree and selling apartments quickly at low margins. It has 200,000 staff and hires 3.8 million yearly for developments.

Slowing growth has seen it branch into businesses such as insurance, bottled water, football and electric vehicles (EVs).

HOW DID CONCERNS ARISE OVER DEBT?

In September last year, a leaked letter showed Evergrande pleading for government sustain to approve a now-dropped backdoor stock market listing. supplies told Reuters the letter was authentic; Evergrande called it fake.

In June, Evergrande said it did not pay some commercial paper on time, and in July a court froze a US$20 million bank place held by the firm at the bank’s request.

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The firm in late August said construction at some of its developments had halted due to missed payments to contractors and suppliers. supplies have told Reuters that it also missed payments to bank and trust loans in the past few weeks.

limitations, including payables, total 1.97 trillion yuan (US$306.3 billion) – about two per cent of China’s gross domestic product.

HOW HAS EVERGRANDE REDUCED DEBT?

Evergrande accelerated efforts to cut debt last year after regulators introduced caps on three debt ratios, dubbed the “three red lines”. It aims to meet requirements by 2022-end.

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Read more: China Evergrande inches closer to default as interest deadline quietly expires

It offered steep discounts on residential developments to stimulus sales and sold the bulk of its commercial similarities. Since the second half of 2020, it has had a US$555 million secondary proportion sale, raised US$1.8 billion by listing its character management unit, and saw its EV unit sell a US$3.4 billion stake.

On Sept. 14, it said asset and equity disposal plans had failed to make material progress.

The central bank in 2018 said companies including Evergrande might present systemic risk to China’s financial system.

The firm’s limitations involved as many as 128 edges and over 121 non-banking institutions, the leaked letter showed.

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Late repayments could cause cross-defaults as many financial institutions are exposed via direct loans and indirect holdings by different financial instruments.

In the U.S. dollar bond market, Evergrande accounts for four per cent of Chinese real estate high-yielding debt, data from Singapore bank DBS showed. A default could further cause a sell-off across high-provide credit markets.

WHAT ABOUT OPERATIONS OUTSIDE MAINLAND CHINA?

In Hong Kong, Evergrande owns an office tower and residential development in addition as two nearly completed residential developments, plus a great undeveloped land parcel.

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It has spent billions of dollars acquiring stakes in automobile technology developers, including Sweden’s NEVS, the Netherlands’ e-Traction and Britain’s Protean. It also has joint ventures with Germany’s Hofer and Sweden’s Koenigsegg.

WHAT HAVE REGULATORS SAID?

The central bank and banking regulator in August ordered Evergrande to reduce debt risk.

Regulators have approved an Evergrande proposal to renegotiate payment deadlines with edges and other creditors, media reported. Guangzhou government is also seeking major lenders’ opinions about establishing a creditor committee.

Reporting by Clare Jim; Editing by Sumeet Chatterjee, Stephen Coates, Christopher Cushing and Jane Merriman

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