Financial risks from debt problems of China’s Evergrande Group’s (恆大集團) are “controllable” and unlikely to spill over, the People’s Bank of China said on Friday, amid growing investor concerns that the crisis could ripple through other developers.
Evergrande is the world’s most indebted developer, with more than US$300 billion in liabilities. The company missed a third round of interest payments on its offshore bonds last week, spooking investors globally and sparking concern that other companies in the sector might also default on payments.
“Of the total liabilities of Evergrande Group, financial liabilities are less than one-third. Creditors are also relatively dispersed, and individual financial institutions have little risk exposure,” central bank financial markets department deputy head Zou Lan (鄒瀾) told a news briefing. “Overall, the risk of the spillover to the financial industry is controllable.”
Photo: Reuters
Evergrande came under pressure after the Chinese Communist Party ordered property developers to reduce their debt levels. The authorities are trying to direct the industry toward a more sustainable pace of development after many years of stimulus-fueled growth.
Zou said that Evergrande had been “poorly managed” in the past few years and “failed to operate cautiously” according to changing market conditions.
Instead, the company had blindly diversified and expanded, which affected its operations and finances, he said.
“The real-estate industry is generally healthy,” Zou said, adding that most real-estate companies are operating in a stable manner with health financial indicators.
Zou’s comments broke the Chinese government’s silence on Evergrande, whose stock price has plunged since its cash crunch came to light, and the company halted trading of its stock earlier this month pending a “major transaction.”
So far, details of that possible deal have not been announced.
The official said that financial authorities and local governments were urging Evergrande to increase its asset disposal and speed up restoration of its construction projects to safeguard the interests of consumers, and that the financial department would provide financial support for the resumption of projects.
Earlier this month, Shenzhen-based real-estate developer Fantasia Holdings Group (花樣年控股集團) missed payments on a US$206 million bond. Another Chinese developer, Sinic Holdings Group (新力控股集團), said in a filing to the Hong Kong Stock Exchange that it is likely to default on a US$250 million bond due later this week.
Separately, China’s top developers have asked the government to ease its property sector crackdown, local media reported.
Senior managers of 10 firms asked for “moderate” loosening of real-estate policies at a meeting organized by the government-linked industry group China Real Estate Association, China Business News reported on WeChat.
The real-estate division head of the Chinese Ministry of Housing and Urban-Rural Development attended, as did companies including Poly Developments and Holdings Group Co (保利發展控股集團), China Vanke Co (萬科) and Sunac China Holdings Ltd (融創中國控股), the newspaper said.
The developers’ main requests include stabilizing market expectations, support for home buyers that have genuine housing needs and adjustments in land prices, the report said, citing unidentified people with knowledge of the meeting.
The association in a statement confirmed that a symposium with developers took place in Beijing on Friday afternoon.
The companies briefed attendees about business operations in the first three quarters of this year, and gave opinions and suggestions, it said, without elaborating.
A report on Saturday on the Economic Observer Network said that the housing ministry is drafting rules to strengthen the supervision of developers’ pre-sale funds after various forms of contraventions by companies.
The report, which cited an unnamed source close to the authorities, did not provide more details.
Additional reporting by Bloomberg
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