Chinese real estate 'debt bomb' Evegrande continues to miss payments, amid arrests of former leaders for investigation.
On September 25, Hengda Real Estate Group, the Chinese subsidiary of real estate developer China Evergrande Group, said it was unable to repay a batch of domestic bonds worth 4 billion yuan ($547 million) with interest. Hengda also missed the interest payment deadline on the 2020 bonds in March.
At the time, it said it would “actively” negotiate with bondholders to find a solution. Yesterday, Hengda reiterated that commitment.
Evergrande has been in trouble lately. It is now the world's most indebted real estate company and a prime example of China's real estate crisis.
Logo on the Evergrande Center building in Shanghai. Photo: VCG
Evergrande has been trying to convince its creditors to agree to a plan to restructure its foreign debt since defaulting in 2021. The plan, announced in March, included swapping existing debt for new bonds with maturities of 10 to 12 years.
However, Evergrande said on September 24 that it could not issue new debt because Hengda Real Estate Group was under investigation. Chinese securities regulators opened an investigation into Hengda last month for suspected violations of disclosure rules. On September 22, Evergrande announced that it had canceled a meeting with its main creditors, citing the need to reassess its restructuring.
Caixin also reported on September 25 that Xia Haijun, former CEO of Evergrande, and Pan Darong, former CFO, were being detained by authorities for investigation.
Evergrande shares fell 21.8% yesterday, to their lowest since September 5. "The hopes of Evergrande's creditors have been dashed," Fern Wang, senior researcher at KT Capital Group, told Reuters.
Evergrande, like other Chinese real estate companies, fell into crisis since mid-2021. The cause is believed to be Beijing's "three red lines" policy, launched to reduce systemic risk by limiting the ability of real estate companies to borrow new loans.
Evergrande suffered the most, due to its excessive financial leverage to develop projects and diversify its businesses. Its total debt is now around 2.437 trillion yuan ($340 billion), equivalent to 2% of China’s GDP.
If Evergrande fails to restructure its debt, it could be forced into liquidation. A Hong Kong court will decide on that on October 30.
However, Fern Wang said this is unlikely. "The Chinese government's number one priority is to ensure timely delivery of homes. Liquidating Evergrande's assets will not help with that goal," he said.
Ha Thu (according to Reuters, Caixin)
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