How and why Evergrande keeps China anxious
All the latest woes of the Chinese real estate company Evergrande
Evergrande sinks on the Hong Kong Stock Exchange over $ 300 billion in debt.
China's most indebted real estate company admitted today that it is under "tremendous pressure" over liquidity, at a time when it is unable to sell property and is at the center of protests from small investors and home buyers.
Its share price has plummeted (over 10%) and its bonds are pointing towards a potential default. The company, which came under "tremendous pressure", denied the hypothesis of bankruptcy. But the Chinese giant no longer knows how to honor interest on corporate debt due in 2023.
The group is trying to lower the level of debt by putting some assets on the market.
In the statement to the Hong Kong Stock Exchange, Evergrande accused "the continuing negative media reports" that "have dampened the confidence of potential property buyers".
Any liquidation of the Chinese giant would have significant consequences, not only on the Beijing economy but also on the "social stability" dear to the Chinese leaders.
The first to be overwhelmed would be the real estate sector which holds half of China's offshore corporate debt.
Evergrande's problems have also caused other concerns, as hundreds of housing projects remain unfinished and more than a million people are waiting to move into new homes.
All the details.
SHARES collapse
Shares of Evergrande fell more than 10% in Hong Kong trading on Tuesday. Shares in the company have fallen by around 80% in the past six months. The stock of its electric vehicle subsidiary lost 22%, the shares of the real estate services subsidiary by 8%.
THE POSITION OF EVERGRANDE
In a statement to the Hong Kong Stock Exchange, Evergrande admitted that it was struggling with real estate sales, which fell from 71.6 billion yuan (9.4 billion euros) in June to 38.1 billion yuan (5 billion euros). ) in August.
Not only that: the company also expects in September – a month that traditionally leads to a peak in sales – a "significant continuation of the decline in sales contracts, with a consequent continuous deterioration in the collection of liquidity of the group which will put cash under severe pressure. -flow and liquidity ".
THE CRISIS OF THE CHINESE REAL ESTATE COLOSSUS
Therefore, the Chinese real estate giant has once again warned against liquidity risks due to the decline in case sales on the domestic front.
Troubled by slump in real estate sales, Evergrande also said it is facing "enormous pressure" from creditors and warned it may fail to pay its debts.
HIRED TWO ADVISORS TO "EXPLORE ALL POSSIBLE SOLUTIONS"
The company has mandated two advisors to review financial options.
These are the Chinese Houlihan Lokey and Admiralty Harbor Capital, which will have to "verify the capital structure of the group, assess its liquidity and explore all possible solutions to alleviate the current liquidity issue and reach an optimal solution for all stakeholders. as soon as possible ".
WHAT IS EVERGRANDE
It is the largest real estate group in the country in terms of turnover, with a declared presence in more than 280 cities. The giant claims to employ 200,000 people and indirectly generates 3.8 million jobs. Its president, Xu Jiayin, is the fifth richest man in the country, according to the specialized company Hurun.
The group now goes far beyond building homes, with investments in electric vehicles (Evergrande New Energy Auto), an internet and media production unit (HengTen Networks), a theme park (Evergrande Fairyland), a football team (Guangzhou FC) and a mineral and food water (Evergrande Spring).
In 2020, it reported an adjusted base profit of 30.1 billion yuan ($ 4.7 billion), the second consecutive annual decline, and revenue missed analysts' estimates.
DEBT PROBLEM
Its debts, in the form of bonds, have been repeatedly downgraded by rating agencies out of concerns about how it has struggled to raise money to meet repayments. These include tycoon Zhang Jindong who helped Evergrande avoid the cash crunch last year. To date, Zhang – who controls Inter Milan through Suning Holdings Group – is exposed to the Chinese real estate giant for 20 billion yuan (2.6 billion euros).
THE IMPACT FOR THE CHINESE FINANCIAL SYSTEM
Some analysts have suggested that the company's debt problems could pose widespread risks to the financial system of the world's second largest economy.
"With $ 300 billion in liabilities and connections to a myriad of banks, Evergrande could send shockwaves throughout the financial system," Bloomberg points out.
As the company struggles to sell assets quickly to avoid defaulting on its liabilities, there are concerns that other heavily indebted real estate companies may also be seen as at risk.
"And that the moment to invest in the sector is not the best is confirmed by the decision of the American fund Blackstone, which has chosen to cancel the purchase of the Soho China real estate group: an operation worth 3 billion dollars which will no longer be done. nothing ”underlined Il Sole 24 Ore .
EVERGRANDE TOWARDS RENOVATION ACCORDING TO ANALYSTS
Finally, a restructuring planned by the Chinese government is expected for the Chinese real estate group Evergrande.
Iris Chen, credit analyst at Nomura International Hong Kong, told Bloomberg on Monday that a restructuring of the group is "almost inevitable". He believes the Beijing government will ensure that Evergrande delivers homes and pays suppliers, where investors with dollar debt would get 25% of their money back.
As the Guardian reports, “Luther Chai, senior research analyst at CreditSights Singapore, also said Evergrande will default and go into restructuring. Evergrande's dollar bonds are trading at around 30c in dollars, which indicates losses of 70%. Foreign investors own $ 7.4 billion of Evergrande's US-denominated debt.
“We believe Evergrande can collapse in a controlled way,” commented analyst Ben Wang, of Jamieson Coote Bonds.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/come-e-perche-evergrande-sta-collassando/ on Tue, 14 Sep 2021 11:20:58 +0000.