Real estate company
Evergrande is sliding even deeper into the crisis
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The heavily indebted Chinese real estate giant Evergrande itself warns of payment defaults. An official working group is now supposed to clean up. What will happen to the US dollar bonds?
Concerns about Evergrande’s solvency caused the share price of the Chinese real estate giant on the Hong Kong stock exchange to fall by around 20 percent to a record low on Monday.
According to a report by the Bloomberg finance agency, citing informed people, a restructuring of the company’s credit burdens is imminent. Accordingly, Evergrande also wants to include all of its US dollar bonds. It is about papers that the group and its Scenery Journey division have issued.
Restructuring planned
Evergrande would have to pay interest on two Scenery bonds this Monday. If this does not succeed, the group could trigger a default on the bond market for the first time. According to an insider named in the report, the planned rescheduling also includes bonds worth $ 260 million from the joint venture Jumbo Fortune Enterprises, for which Evergrande has guaranteed.
The government of the southern province of Guangdong, where Evergrande is based in the economic metropolis of Shenzhen, has sent a working group to the company. The extent of the debt should be checked and the risks should be dispersed, it said in the state media. The state agency Xinhua wrote that uncertainties for other companies should also be reduced, the rights and interests of all parties involved should be protected and “social stability should be secured”.
The central bank attributes the problems of Evergrande mainly to “mismanagement and the breakneck expansion”. It is an “isolated case” that will have little impact on the market. With the announcement, the central bank sought to allay concerns about contagion, effects on the housing market and similar practices by other real estate groups.
The real estate giant had itself warned of possible payment difficulties late on Friday evening. After a financial review, no guarantee can be given that the group will have sufficient funds to meet its financial obligations, the company said.
$ 300 billion in debt
Evergrande has been in a deep crisis for months and is considered the world’s most heavily indebted real estate company. There is an urgent need to raise funds in order to be able to pay banks, suppliers and bondholders on time. The total debt is estimated at 300 billion US dollars. The share price has now fallen 88 percent this year.
China’s authorities are trying to reduce the impact on homeowners or buyers who have made down payments. Employees and individual investors have also bought the company’s wealth creation products, the fate of which is now also uncertain.
Against the background of the crisis and the economic headwind for the second largest economy, the central bank gave the banking industry more air to breathe. On Monday, the central bank announced that it would lower the rates for reserves that financial institutions must hold for security purposes. The minimum reserve ratio is expected to drop by 0.5 points to 11.5 percent by December 15. This would free up liquidity of around 1.2 trillion yuan.
How China’s economy will fare in the New Year is the focus of longer-planned deliberations at which the Communist Party’s Politburo met on Monday. It is expected that the target for growth in 2022 may only be around five percent or a little more. For this year, “more than six percent” was targeted.