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China Evergrande Group is deeply in losses-up to 300 billion U.S. dollars. People are increasingly worried that if it defaults on debt, it may bring disaster to China’s real estate market and set off shock waves in the world’s second largest economy.
On Wednesday, Bloomberg News, citing people familiar with the matter, reported that the real estate developer may not be able to repay part of its $300 billion debt next week, and may not be able to repay the principal. At least on one of its loans.
This is the latest development in the legend of the real estate giant, which is closely watched in China and globally.
Evergrande is currently the real estate developer with the most debt in the world. The core question is whether the Chinese authorities plan to inflict significant losses on Evergrande’s creditors, or whether the Chinese Communist Party government, which values stability and control, will intervene in some way to avoid chaotic defaults and the destructive chain reaction they may cause.
The following is the information you need to know about Evergrande and its current financial situation that may have an impact on the Chinese and global economy.
Start from scratch. How long has Evergrande been in business?
Hengda was founded in 1996 by Xu Jiayan in Guangzhou, China.
According to Forbes, the Hui nationality graduated from university in 1982 and worked in a steel factory before founding Evergrande. His current net worth is US$11.4 billion, making him the 53rd richest person on the 2021 Billionaires list and the richest person in China. The 10th richest person 2020.
The 62-year-old is currently the chairman of Evergrande.
Xu Jiayan is the founder and chairman of China Evergrande Group [File: Paul Yeung/Bloomberg]How many projects does the company currently have?
Evergrande currently has 1,300 real estate projects in 280 cities in China. website.
It also expanded to other industries, including electric vehicle production, property management, film and television, theme park construction, life insurance, hospitals, football clubs, and the production of food, mineral water and infant formula.
Wow. How big are these other efforts?
The company’s website shows that the company’s property management department Evergrande Property Services has approximately 2,800 projects in 310 cities in China, with a total contract area of more than 680 million square meters.
Evergrande New Energy Automobile has set an ambitious goal to develop 14 electric models ranging from cars to sport utility vehicles, with annual production and sales of 5 million vehicles by 2025 and 5 million vehicles by 2035.
The company’s media company Hengteng Networks includes a streaming media platform called Pumpkin Movies, which said it had 20.1 million paying users as of the end of May, and a film and television production company called Ruyi Movies.
Evergrande also owns a sports team-Guangzhou Evergrande, which is one of the most famous football clubs in China. But it is not a tool to make money: Bloomberg Intelligence analysts Dan Wang and Daniel Fan wrote in a recent report that the company loses an estimated $155 million to $310 million in football-related businesses each year.
understood. So how much trouble has Evergrande encountered?
According to the company’s listed liabilities, of which about 300 billion US dollars, and Evergrande’s inability to pay the interest and principal of its loans in time, investors in China and abroad are worried.
This also triggered protests from home buyers, investors and even employees of the company. They appeared outside Evergrande’s office and demanded that company officials meet with them.
On September 14, police and security guards stood in front of the entrance to the roadblock at the headquarters of Evergrande Group in Shenzhen, China, as the company faced increasing protests from home buyers, retail investors and even its employees, which increased the bet for the authorities.Beijing tries to stop the real estate giant’s debt crisis from triggering social unrest [File: Bloomberg]Oops. What did Evergrande say?
It looks like things will get worse.
In a statement (PDF) On Tuesday, company officials said that they expect contract sales to continue to decline this month, “which will cause the group’s cash collection to continue to deteriorate, which will put tremendous pressure on the group’s cash flow and liquidity.”
What did Evergrande do to avoid the crisis?
The company has Hire a financial consultant The board of directors stated that Houlihan Lokey and Admiralty Harbour Capital will help “assess the group’s capital structure, assess the group’s liquidity, and explore all feasible solutions to alleviate the current liquidity problems, and find the best for all stakeholders as soon as possible. solution”. Its statement on Tuesday.
But so far, other measures to raise cash have failed. Evergrande stated that the sale of its 18,580-square-meter large office building in Hong Kong, China Evergrande Center, “has not been completed within the expected timetable.”
So far, it has been unable to sell some of its interests in electric vehicles and property management departments, Evergrande New Energy Automobile Group Co., Ltd. and Evergrande Property Services Group Co., Ltd.
How did investors react?
nervous. Since the beginning of the year, Evergrande’s stock price has fallen by 81%, and its US dollar bonds have fallen to historical lows.
Moody’s Investors Service downgraded the ratings of Evergrande and its subsidiaries on September 7 on the grounds that the outlook is negative.Fitch Ratings also took the same move, downgrading the company’s rating and writing It believes that “some kind of default may occur.”
So what will happen next?
This is a problem worth billions of dollars. According to Bloomberg News, Evergrande holds approximately US$84 billion in interest on bonds maturing on September 23.
But the company’s board of directors seems to be preparing for the worst.
The board of directors said in a statement on Tuesday: “In view of the above-mentioned difficulties, challenges and uncertainties in improving liquidity, there is no guarantee that the group will be able to perform the financial obligations under the relevant financing documents and other contracts.”.
“If the Group is unable to perform its guarantee obligations or repay any debts upon maturity, or reach an agreement with relevant creditors on the extension or replacement of such debts, it may lead to cross defaults under the Group’s existing financing arrangements, and relevant creditors require speeding up Repayment,” they added.
What about the Chinese government?
Everyone’s eyes are also focused on whether the Chinese government will intervene and help Evergrande out of the crisis. According to Bloomberg News, the Guangdong authorities have rejected at least one rescue request from the company’s founder.
But the collapse of Evergrande may have a knock-on effect across China, leading to financial turmoil and civil unrest. These are two things that President Xi Jinping and his risk-averse government have tried to avoid.
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