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Tags: China | Troubled Developer

Chinese Developer Warns it May May Run out of Money

Friday, 03 December 2021 01:00 PM

BEIJING (AP) — A Chinese developer that is struggling under $310 billion in debt warned Friday that it may run out of money to “perform its financial obligations,” prompting regulators to scramble to assure investors that China's financial markets can be protected from a potential impact.

Evergrande Group’s struggle to comply with official pressure to reduce debt has fueled anxiety that a possible default might trigger a financial crisis. Economists say global markets are unlikely to be affected but banks and bondholders might suffer losses because Beijing wants to avoid a bailout.

After reviewing Evergrande’s finances with outside advisers, “there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” the company said in a statement released through the Hong Kong Stock Exchange.

Shortly after that, regulators tried to soothe investor fears by issuing statements saying China's financial system was strong and that default rates are low. They said most developers are financially healthy and Beijing will keep lending markets functioning.

“The spillover impact of the group’s risk events on the stable operation of the capital market is controllable,” the China Securities Regulatory Commission said on its website. The central bank and bank regulator issued similar statements.

Beijing tightened restrictions on developers' debt levels last year in an effort to rein in surging corporate debt that is seen as a threat to economic stability.

The ruling Communist Party has made reducing financial risk a priority since 2018. In 2014, authorities allowed the first corporate bond default since the 1949 communist revolution. Defaults have gradually been allowed to increase in hopes of forcing borrowers and investors to be more disciplined.

Despite that, total corporate, government and household debt rose from the equivalent of 270% of annual economic output in 2018 to nearly 300% last year, unusually high for a middle-income country. Economists say a financial crisis is unlikely but debt could drag on economic growth.

Evergrande, the global real estate industry’s biggest debtor, owes 2 trillion yuan ($310 billion), mostly to domestic banks and bond investors. It also owes $19 billion to foreign bondholders.

The company has sold assets to pay debt and announced plans to give some bondholders apartments in projects under construction.

The Evergrande chairman, Xu Jiayin, was summoned to meet Friday with officials of its home province of Guangdong, the government said in a statement. The statement added that a government team would be sent to Evergrande headquarters to help oversee risk management.

Evergrande’s struggle has prompted warnings that a financial squeeze on real estate — an industry that propelled China’s explosive 1998-2008 boom — could lead to trouble for banks and an abrupt and politically dangerous collapse in economic growth.

Evergrande’s statement said the company faces a demand to fulfill a $260 million obligation. It said if that obligation cannot be met, that might lead other creditors to demand repayment of debts earlier than normal.

Also Friday, another developer, Kaisa Group Holdings Ltd., warned it might fail to pay off a $400 million bond due next week. Kaisa said it tried to renegotiate the debt due Tuesday but too few bondholders agreed to unspecified terms.

A midsize developer, Fantasia Holdings Group, announced Oct. 5 it failed to make a $205.7 million payment due to bondholders.

Hundreds of smaller Chinese developers have gone bankrupt since regulators began tightening control over the industry’s finances in 2017.

The slowdown in construction helped to depress China’s economic growth an unexpectedly low 4.9% over a year earlier in the three months ending in September. Forecasters expect growth to decelerate further if the financing curbs stay in place.

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A Chinese developer that is struggling under $310 billion in debt warned Friday that it may run out of money to "perform its financial obligations," prompting regulators to scramble to assure investors that China's financial markets can be protected from a potential...
China,Troubled Developer
Friday, 03 December 2021 01:00 PM
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