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HONG KONG (BLOOMBERG, REUTERS) – China’s Evergrande bonds paused on Friday (Sept. 25) after falling following reports that it warned officials it faces a potential debt default that could affect the company’s financial system. nation if it does not get approval for a stock exchange. list.
The Shanghai Stock Exchange said on Friday that it had temporarily suspended trading on two bonds issued by Evergrande Real Estate Group due to abnormal fluctuations.
The suspensions were applied to the company’s bonds at 6.27 percent from May 2023 and 6.8 percent from May 2024.
Shares of China Evergrande Group, the country’s second-largest real estate developer, fell as much as 4.6 percent on Friday in early trading on market concerns about its cash flow.
The world’s most indebted developer has warned Chinese officials that it faces a potential debt default that could affect the country’s $ 50 trillion (Singapore $ 68.7 trillion) financial system unless regulators approve the listing in The company’s stock market, which was delayed for a long time, Bloomberg reported.
China Evergrande Group set the scene in an Aug. 24 letter to the Guangdong government seen by Bloomberg, in which the company sought support for a restructuring proposal necessary to secure the listing and avoid a cash crisis.
Evergrande said Thursday night that a document circulating online about a reorganization of its Hengda Real Estate subsidiary was fabrication and defamation, and said it had reported the matter to public safety authorities.
Some of Evergrande’s largest strategic investors have the right to demand their money back if the company does not obtain approval to list on the Shenzhen Stock Exchange by January 31. If investors refuse to extend the term, Evergrande will have to repay the same amount. like 130 billion yuan (26.2 billion Singapore dollars), equivalent to 92% of its cash and cash equivalents.
That can lead to “cross-defaults” on Evergrande’s loans to banks, trusts, funds, and the bond market, eventually creating systematic risks to the overall financial system, according to the letter sent to the Guangdong provincial government, where it has its headquarters the company. .
Calls to the Guangdong government media office on Thursday (September 24) went unanswered.
“The relevant documents and images are fabricated and are pure libel, causing serious damage to the reputation of the company,” Evergrande said in a statement. “The company strongly condemns such acts and has reported the case to public security authorities. The company will take all legal action to protect the legitimate rights and interests of the company.”
He added that the firm generated 400 billion yuan of cash inflows from project sales in the first eight months and maintains healthy operations. He did not address questions about whether he sought help from the government.
S&P Global lowered its outlook on Evergrande’s B + credit rating to negative from stable on Thursday.
“We believe that the liquidity of China Evergrande Group is weakening amid the continued increase in short-term debt obligations and the possible repayment of a portion of its strategic ‘A shares’ investments in China in January 2021,” he said S&P.
Still, the rating company downplayed the risk of a liquidity crisis, noting that Evergrande is trying to convince strategic investors to stay and is an “asset rich” company with multiple fundraising channels. Evergrande’s sales will likely remain stable in 2020, S&P said.
Chinese policy makers have a long history of supporting systemically important companies to maintain financial stability. While the government has tried to instill more market discipline and reduce moral hazard in recent years, authorities bailed out several troubled regional lenders in 2019 and have helped engineer at least six bank mergers since May.
PROPERTY BELLWETHER
Evergrande is seen by investors as a benchmark for China’s highly leveraged real estate sector. The company’s total debt rose 4 percent to 835 billion yuan at the end of June, compared with 800 billion yuan at the end of 2019. Net debt rose to a record 631 billion yuan with a weaker cash cushion, according to Bloomberg calculations.
Evergrande reiterated an aggressive deleveraging goal in August: cut loans by roughly 150 billion yuan each year from 2020 to 2022, or about half of its current debt load. But so far it has not kept the promise.
The company has since launched a nationwide sales barrage to recoup cash, raised $ 3 billion by selling a stake in its services arm, and cut spending on land purchases. Total investment in electric vehicles is expected to be 29 billion yuan, less than the 45 billion yuan previously forecast.
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