China Evergrande Group (恒大集團) is facing a crisis of confidence among its creditors, who have lent the world’s most indebted property developer more than US$120 billion.
Long-simmering doubts about the health of China’s biggest property company by revenue exploded to the fore on Thursday, following reports that it had warned local government officials of a potential cash crunch that could threaten China’s financial stability.
Investors yesterday dumped Evergrande’s bonds, sending its yuan note due in 2023 down as much as 28 percent to a record low.
Photo: Reuters
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Evergrande said in a statement that rumors and documents circulating online were “fabricated” and “pure defamation,” without commenting directly on whether it had warned officials of a potential cash crunch.
The company, controlled by billionaire Hui Ka Yan (許家印), said that it generated 400 billion yuan (US$59 billion) from project sales in the first eight months of the year and maintains healthy operations.
Evergrande has won approval from the Hong Kong Stock Exchange to spin off its property management unit, a person familiar with the matter said yesterday, paving the way for it to raise additional capital.
Worries that Evergrande could still face a liquidity shortfall stem from an agreement with some of its biggest strategic investors. It gives them the right to demand their money back if the company fails to win approval for a backdoor listing on the Shenzhen Stock Exchange by Jan. 31 next year.
The repayment could amount to 130 billion yuan, or about 92 percent of Evergrande’s cash and cash equivalents. At least one of those investors has signaled it would be unwilling to extend the deadline.
In another sign that creditors are growing increasingly concerned, at least five Chinese banks and two trust firms on Thursday held emergency meetings to discuss their Evergrande exposure and access to collateral, people familiar with the matter said.
Among them was China Minsheng Banking Corp (中國民生銀行), whose exposure to Evergrande exceeds 29 billion yuan, one of the people said.
At least two of the banks that convened meetings decided to bar Evergrande from drawing unused credit lines, people familiar with the matter said.
The company had credit lines of 503 billion yuan as of June 30, of which 302 billion yuan were unused.
Evergrande has long been viewed as a poster child for highly leveraged companies in China, where corporate debt swelled to a record 205 percent of GDP last year and has likely climbed further this year as firms increased borrowing to tide themselves over during the COVID-19 pandemic.
Evergrande has tapped banks, shadow lenders and the bond market to expand far beyond the property industry into businesses ranging from electric vehicles to hospitals and theme parks — areas that often align with Chinese President Xi Jinping’s (習近平) policy priorities.
Though it is unclear why Evergrande has yet to win approval for its listing plan, some analysts have speculated it could relate to China’s efforts to tame sky-high property prices and restrain fundraising by developers.
Regulators have since 2016 been using a wide range of policy levers to ban property speculation, curb expensive land prices and restrict lending to residential builders.
While Evergrande has said that it would not raise new funds through the listing, its stake sale to strategic investors implies a valuation of about 425 billion yuan for the unit, which holds most of Evergrande’s real-estate assets.
That is almost three times higher than the market value implied by the developer’s existing shares in Hong Kong. Chinese property developers trade at about 12 times projected earnings on average in Shanghai and Shenzhen, compared with about five times in Hong Kong.
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